Credit Report Questions - Part One

by Natasha Meruelo, Esq.

How Long Is A Debt On Your Credit Report?

Clients often come into my office confused about the information on their consumer credit report and want to clean up negative information on their report.

Delinquent accounts are often a barrier to clients obtaining new credit, which can be integral to helping you clean up your credit and obtain products and services you need.

So, let's go over some basic rules about how credit reporting of negative information works.

The Fair Credit Reporting Act

The Fair Credit Reporting Act or FCRA sets forth rules related to information that may be contained in credit reports. The following items can be reported on your credit report (also known as a consumer report)(See § 605 - 15 U.S.C. § 1681c).

1. Bankruptcy cases - no more than 10 years 'from the date of entry of the order for relief (filing) or the date of adjudication (discharge), as the case may be'.  

2. Civil suits, judgments and records of arrest (from the date of entry)- no more than 7 years.

3. Paid tax liens (from the date of payment)- no more than 7 years.

4. Accounts placed for collection or charged to profit and loss ("charged off") - no more than 7 years. HOWEVER:

• The 7 year period begins when the delinquent account is placed for collection, charged to profit and loss or subjected to any similar action.

• An account will not usually be placed for collection or charged to profit and loss until 180 days have passed since the delinquency began.

What this means: The 7 year period won't begin to run until the account is more than 180 days past due. So, making "partial payments" or any other payments that prevent the debt from getting charged off can mean this debt may legitimately be on your credit report for longer than 7 years.

5. Any other adverse item of information- no more than 7 years.

6. Generally speaking, there are also restrictions on the reporting of medical debts in order to protect the nature of the medical services, products or devices used by you from being disclosed.

BUT, these rules do not apply to consumer credit reports that may be used in connection with a) credit transactions which involve $150,000 or more, b) insurance underwriting for insurance with a face amount of $150,000 or more or c) employment of an individual who is expected to be paid $75,000 or more. 

So, mortgage companies, insurance companies and potential employers may be able to access negative data about you that normal consumer finance companies will not know about you even after the time frames above have passed. It is therefore in your best interests to nip negative credit information in the bud as soon as possible before too long a record develops.

How Bankruptcy May Be Able to Help You

I often recommend that a client consider bankruptcy sooner rather than later in order to avoid negative credit information piling up. As explained above, negative information can be accessed by some creditors for a lot longer, so having minimal negative credit information is ideal. 

Once you receive a bankruptcy discharge, debt cannot continue to spiral out of control, be placed for collection or charged off. This is because a bankruptcy discharge eliminates your liability for the debt and therefore your obligation to pay for it (which is another benefit of bankruptcy). 

Debts discharged in your bankruptcy case are typically reported as having a $0 balance and discharged in bankruptcy. A creditor certainly cannot continue to report the debt as having a balance due. These trade lines should drop off after 7 years and will no longer be visible to typical consumer creditors (lending you less than $150,000, not selling you insurance or pulling it for employment purposes). 

Creditors who look at your credit report will also see that you have a much lower debt to income ratio after the bankruptcy discharge compared to your ratio pre-bankruptcy. Creditors also know you cannot file bankruptcy again until certain time frames have passed and may view you as a better credit risk than a similar person with similar income who has debt (even if they are not delinquent). This is because since you have less debt, you have more ability and resources to pay for new credit.

Judgments will not automatically fall off your credit report, but they will be unenforceable against you personally and there is a way to remove them from your county clerk's records here in New York State as a result of your bankruptcy discharge.

Finally, debts discharged in bankruptcy have no tax consequences.  Debts  discharged through debt settlement or even as a result of the creditor's decision to forgive them often result in 1099-c income, which means you may end up owing money to the IRS.

Bankruptcy has many more benefits as well and if you are considering bankruptcy, you should always consult with a qualified bankruptcy attorney to understand your options.

Next Up: Re-Aging of Old Debts On Your Credit Report, Disputing Information on Your Credit Report and Collection of Time Barred Debt

Questions or interested in a free consultation about your case? Email Natasha Meruelo, Esq. at meruelolaw@gmail.com or call me at (914) 517-7565. The first consultation is always free.

Natasha Meruelo, Esq. is located at 445 Hamilton Avenue, Suite 1102, White Plains, NY 10601.

*Natasha Meruelo, Esq., designated as a Federal Debt Relief Agent by an Act of Congress and the President of the United States, proudly assists consumers seeking relief under the US Bankruptcy Code.   Prior results do not guarantee a similar outcome.

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