Statute of limitations doesn't wipe credit slate clean


To Her Credit
To Her Credit, Sally Herigstad
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for, and also wrote for MSN Money, and, and has guested on Martha Stewart Radio and other programs. See her website for more personal finance tips and free budgeting worksheets.
Ask Sally a question, or read her previous answers in the To Her Credit archive

Dear To Her Credit,
According to your site, after the statute of limitations has passed and the creditor has written off the debt, your credit history slate is not wiped clean. Potential creditors, and anyone else who looks at your credit report, can see the debt and the fact that it was never paid.

You say that it takes seven years (five years for New York state residents) from the original delinquency date on the account before the debt drops off your report. Is that correct? Why is the length of time in New York State five years? Is it the only state with a shorter time limit, or by any chance does New Jersey have a five-year limit as well? -- Mary


Dear Mary,
You are correct that neither the statute of limitations nor the creditor writing off a debt have anything to do with how long a negative mark remains on your credit report.

In fact, just to be clear, the date that the debt becomes uncollectable due to the statute of limitations and the time the creditor writes it off may also have little to do with each other. A creditor may decide a debt isn't worth his while to collect long before the statute of limitations runs out. Or the creditor (or other collector) may try to collect long after the statute of limitations would apply.

One misconception about the statute of limitations is that debts magically disappear when a certain amount of time is up. The statute of limitations is available as a legal defense that can shield you from court judgments if you're sued over an old debt. This defense must be asserted -- it's not automatic. If you are sued for an old debt and ignore the debt or don't assert the statute of limitations as a defense, you may waive using it as a defense.

Another idea people have is that creditors are not supposed to try to collect after the statute of limitations has passed. The law doesn't stop creditors and collectors from attempting to collect old debts. It only means they may not collect successfully if you assert the statute of limitations as your defense.

The time period for the statute of limitations and the length of time before a negative mark will drop off your credit report may not begin on the same date. As you note, the delinquent debt is supposed to drop off your credit report about seven years after the original delinquency date (five years in New York). Making another payment or contacting your creditor does not restart the time period that your negative mark stays on your credit report.

The statute of limitations, on the other hand, may be restarted when you make another payment or another purchase on the account, or when you reaffirm the account; for example, when you agree to make payments.

There are a few exceptions to the seven-year rule for negative marks remaining on credit reports. Bankruptcies can stay on your report for up to 10 years. Unpaid tax liens stay on longer, for up to 15 years. Hard inquiries to your credit -- the kind that are reported when you apply for new credit or a loan -- only stay on your report up to 24 months.

New York has a special rule. Under the New York State Fair Credit Reporting Act, unpaid collections in New York may still remain on your report for up to seven years. However, New Yorkers have an extra incentive to pay off their debts. For paid collections, under Section 380-j (f) (iv), the negative information drops off their reports in only five years. I don't see a similar exception for New Jersey.

One bit of good news: Positive information stays on your credit report longer than most negative information. If you make payments on time, this information may stay on your credit report for up to 10 years.

See related: Reaffirming debt rarely a good idea

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Published: July 3, 2015

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