New debt collector, new black mark on credit? The Debt Adviser by Steve Bucci • Bankrate.com

Dear Steve,

I recently checked my credit report and noticed that some old debts (past seven years) were recently sold to a third-party collection agency and they are now re-reporting the debt on my credit record. Can they do this? Is that going to be on my credit report for another seven years?

I deserve any criticism you will deal me about not settling these debts sooner. I do intend to contact the third-party collection agency to work out a payment plan, but my question is, can that third party re-report and change the "date the account was opened" in order to negatively affect my credit for another seven years, after it was already reported for seven years by the original creditor?

I have come across this question asked by many in forums and none of them had answers, so I'm hoping you will be able to help me and others with the same question. Thanks so much for your time.
-- Julie

Dear Julie,
Aw, I'm not going to pick on you. I'm really a softie. And besides, you are doing a great job criticizing yourself.

Let me try to help. Yes, the sooner you deal with debts that are owed the better, but you already know that. As far as your question about how the debts can be reported is concerned, here's the scoop:

The Fair Credit Reporting Act (Section 605) requires that credit reporting agencies report a debt for no more than seven years from the date the delinquency was placed for collection or charged off -- whichever comes first. Accounts are typically not charged off or placed for collection until the account is 180 days past due, so you really end up with seven years and six months after the first missed payment. Before that, you may have a string of late items followed by catch-ups. But they don't count for the seven-year period -- that only begins when it's charged off or placed for collection.

For example, let's take an account on which the last payment was made in September 1994 and went delinquent a month later in October 1994, when the first payment was missed. After making various efforts to collect, the creditor charged off after six months in March 1995. The seven-year clock started ticking in March 1995, and the item should be removed from your credit report in March 2002. If the company decides to place your debt for collection in March 2005, the collection agency cannot legally report the debt on your credit report. It's too late.

The clock cannot be restarted for credit reporting purposes. The Fair Credit Reporting Act's seven-year reporting date used to be based on last activity, but 1996 amendments to the act require creditors and collection agencies to report the original delinquency date. Many "experts" still say that making a payment creates a new "last activity" and restarts the clock, but that is no longer correct. Creditors may try to get away with that, but if consumers dispute the listing it will have to be removed by the bureau if the account is more than seven years from the original delinquency date.

One important note: I am only talking about restarting the clock for credit reporting purposes. There is a different "clock" for the statute of limitations in your state, which is what determines whether you legally owe the debt. Making a partial repayment will restart the clock in many instances. TDo you still owe the debt? Morally, yes. Legally, probably not, unless you made a partial payment or otherwise reaffirmed the debt. Regardless, they can still attempt to collect on it. But can it negatively affect your credit? No.

In the law there are always exceptions, and there are three I want to mention.

• The seven-year reporting limit does not apply to credit transactions of $150,000.
• The seven-year limit doesn't apply to student loans.
• If the creditor or collector gets a judgment against you from a court, that judgment will be a public record item that will be reported for a new seven-year period, and any subsequent renewals of the judgment have their own seven-year reporting period. When the courts are involved, all bets are off and reporting can go on seemingly forever.

A word or two of advice: Before you contact the collector and commit to a payment plan, figure out what you can realistically pay while maintaining your current financial commitments. Be sure your plan includes some savings toward an emergency fund that will eventually build to six months of living expenses. Make it a priority to start one now if you haven't already. Lastly, create and maintain a workable spending plan with some wiggle room in it so that you are in control of how you are spending your money. For example, a midnight ice cream habit is between you, your waistline and your spending plan, but the Debt Adviser always sides with a little ice cream now and then.

Good luck!

The Debt Adviser, Steve Bucci, is the president of Money Management International Financial Education Foundation and the author of Credit Repair Kit for Dummies. Visit MMI for additional debt advice or click here to ask a debt question.