The following question was submitted to John Roska, an attorney/writer whose weekly newspaper column, "The Law Q&A," runs in the Champaign News Gazette.
A collection agency started dunning me for an old credit card debt. Several years ago, the credit card company told me they had written off the debt, and on my credit report it says it was “charged off.” How can I still be liable on that debt?
A written or charged off debt is just an adjustment on the creditor’s balance books. It shifts your debt from the accounts receivable column to the bad debt column. That affects the creditor’s profits and losses, but doesn’t change your legal liability to repay the debt.
Fresh debt goes in the accounts receivable column on a creditor’s books. As the name suggests, it’s an account the creditor expects to receive payment on.
If you don’t pay, at some point that account receivable is charged or written off. That just means it’s been re-classified as a bad debt.
As an account receivable, your debt contributed to profits. As a bad debt, it’s a loss. That accounting change has tax consequences for a creditor, and increased bad debt can sometimes sound alarms to auditors and regulators.
But it doesn’t mean the debt has been forgiven, and that you’re excused from having to pay. You’re still on the hook. The creditor—or others—can still try to collect from you.
But not forever. Eventually, the statute of limitation on the debt runs out, which gives you a defense if you’re sued.
On debts based on written contracts, the statute of limitation is 10 years.
On unwritten contracts, it’s 5 years. Surprisingly, most credit card debit is considered to be based on unwritten contracts, as is most medical debt.
And, on “secured transactions,” where some personal property was collateral for the debt, the statute of limitations is 4 years. Lots of people overlook this one, which applies to many car loans.
The clock on a statute of limitation starts ticking upon your “default.” That’s usually your last payment.
That means that for the statute of limitations to have expired, five years must have passed from your last payment on your doctor or credit card bill. New payments re-start the statute of limitations clock. That’s often why collectors try to coax new payments out of you.
An expired statute of limitation gives you a defense if you get sued in court. But if you don’t raise that defense in the court case, on your own, it won’t automatically dismiss the case.
An expired statute of limitation also makes it illegal for collectors to try to collect from you. That wasn’t always the case, but recent court cases now make it clear that collectors violate the Fair Debt Collection Practices Act by trying to collect stale debt.
Finally, there’s a separate 7-year statute of limitation on how long debts or charge-offs can show up on your credit report. That 7 years starts 180 days after the debt first becomes delinquent, and is not extended by later payments.