Most delinquent debt has 7-year limit

Steve BucciQuestionDear Debt Adviser,
With regard to credit reports, how does one deal with creditors trying to collect on debt that they bought from another creditor? For example, you had credit card debt that went into default. After some years, the debt was bought by another firm that is trying to collect. And the pattern continues and the practice doesn't seem fair from a credit reporting practice. I had believed that the original debt would be removed from the report if seven years had passed. I live in the state of Texas. A similar question that I have is regarding car repossessions that resulted in the collectors being issued judgments to collect. The repossessed car loan accounts have been sold in the same manner described above for credit cards.
-- DJ

AnswerDear DJ,
This question could only come from Texas! I lived in the Lone Star State early in my career and my first son was born there. I am pleased to see that the concept of fair play and the bad guys being brought to justice still survives. Also, that people still go by their first two initials as my son SB can attest. My guess is that the collection firm you are dealing with is full of Yankees who don't share your view of fair play.

You are correct that the garden variety negative items on your credit report, with the exception of a Chapter 7 bankruptcy, government debts and a few other categories, must be deleted from your report seven years after the first date of the delinquency that resulted in the debt being charged off.

The collection account is a reincarnation of the original debt that is long since dead but not forgotten. It has probably been sold numerous times. However, the original debt plus fees and interest are what's being collected. Therefore, the new collection account is still subject to the seven-year date of the original account, regardless of when the collector bought the debt. Whether by design or a lack of fastidiousness, my experience is that players in the secondary debt market are less tidy in their credit reporting habits than original creditors. It's lucky for you that credit reporting agencies don't like untidy credit reporters any more than a Texas ranger likes a rattlesnake.

What I want you to do is dispute the collection account item(s) on your credit report with the bureau reporting it. Be sure to provide information on the original credit card account that is the source of the debt and that it is past the seven-year reporting period. The credit bureau will give the collector 30 days from when they receive the dispute to verify that the item is accurate and not out of date, or the bureau will remove it from your report. Should the bureau find that the item is accurate, you will receive an explanation from the bureau as to why it made that determination. Keep good records of everything you send in. You may have more than one go around with the collectors to get this off your credit report, but in the end you should prevail.

Judgments, however, are a horse of a different color when it comes to credit reports. Civil judgments related to credit accounts, such as defaulted car loans, are recorded in the public record section of your credit report. Judgments must be removed from your report after seven years, but from the date of the judgment not the date of first delinquency of the account. So, each time a collector is granted a judgment to collect a debt, the judgment will appear on your credit report and will remain for seven years from the date of the judgment.

Any credit accounts related to the car loan from original creditors or collectors that are reported on your credit report must be removed seven years from the date of first continuous delinquency.

If collectors are still receiving judgments for a debt that is old enough to have been removed from your credit report, I recommend you visit with an attorney to see if the debt is no longer collectible due to the statute of limitations, which is four years in Texas.

Good luck!

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