If you have unpaid debts—and especially if you have a lawsuit over an unpaid debt—you may be wondering: When will this ever be over? When will I have all these bad debts behind me, once and for all? How long do I have to wait until my credit clears up so that I can get a mortgage or a car loan?
This article discusses the various timelines that apply to defaulted credit card debts.
Your account gets “charged off” after being in default for 6 months.
Once your account has been in default for 6 months, the credit card company has to declare your account to be a “charge-off.” This doesn’t mean you don’t owe the debt any more. It just means that the credit card company has to declare your account to be a “bad debt” and can no longer count it as a “good debt” for their bookkeeping purposes.
Once your account has been charged off, the credit card company can either “keep” your account and try to collect the money themselves, or they can sell your account to a “debt buyer.” If your account is sold to a debt buyer, the money is then owed to the debt buyer, and not to the credit card company any longer. The debt buyer can then proceed with trying to collect the debt from you (by calling you and sending you letters), or they can sue you to collect the money.
The statute of limitations for them to sue you is 4 years.
In Texas, the statute of limitations is 4 years. So the credit card company (or the debt buyer that purchased the account from the credit card company) has 4 years to sue you from the time you default on the debt. So if, for example, you made your last payment on the account in June of 2008 and your account went into default in July of 2008, the credit card company or debt buyer has until July of 2012 (4 years from the default date) to sue you.
If you get past the statute of limitations with no lawsuit, then you’re in the clear, lawsuit-wise. But if they sue you, and the lawsuit results in a judgment, then you go into a longer credit time frame for the judgment, as explained below.
The defaulted debt can remain on your credit report for 7 years.
If you look at your credit report closely, there is a field called “Date of Last Activity” or “DLA.” The date of last activity is, not surprisingly, the last date any activity took place on the account. On a credit card debt, the last activity is the charge off, and the date of last activity is the charge off date.
The derogatory entry on your credit report has to drop off 7 years after the charge-off date. In fact, it is the date of last activity, as reported by the creditor, that triggers the credit bureau to drop the entry from your credit report.
If a credit card company sells your account to a debt buyer, the 7-year time frame does not get extended. Some debt buyers, however, erroneously report a new—and later—date of last activity when they purchase an account. “Re-aging,” as this practice is called, is not proper, and you are entitled to have the derogatory entry removed from your credit report at the conclusion of the original seven years.
A judgment is valid for 10 years and can be renewed for another 10 years after that.
Judgments in Texas are valid for 10 years and can be renewed for another 10 years after that (and another 10 years after that and so on for the rest of your life). As long as the judgment is “active” and not expired, it can appear on your credit report.
More importantly, as long as the judgment is active and not expired, the creditor can collect on it by garnishing your bank account, filing lien papers in the county property records, and/or by whatever other methods are permissible under your circumstances.
It will cost you much less to deal with your lawsuit now, before it becomes a judgment, than it will cost you to deal with the judgment later.
If you deal with your lawsuit NOW, before it results in a judgment, you will be much better off, both money-wise and credit-wise.
Money-wise, it will cost you a lot less to deal with your lawsuit now, before it results in a judgment. Legal fees for debt lawsuits are very low, and are always less than what you owe on the debt. If we get your lawsuit dismissed, then you don’t have to pay anything to the creditor. If we can’t get your lawsuit dismissed, we can settle your debt for a reduced amount.
If you let the lawsuit go to a judgment, the creditor will add interest, court costs, and legal fees to the amount of the debt, which could increase the amount owed by thousands of dollars.
The lawsuit does not appear on your credit report unless it results in a judgment.
Another reason to deal with the lawsuit immediately, instead of letting it go through to a judgment and then trying to settle the judgment, is that the lawsuit does not appear on your credit report until and unless it results in a judgment. So if you have us handle your lawsuit, and we defeat it or settle it, then the lawsuit will never appear on your credit report.
Your credit will be clear years sooner if you resolve the lawsuit, instead of letting it go through to a judgment.
If you just got a lawsuit filed against you, you are probably 2-4 years into the 7-year period that the creditor is allowed to leave the debt on your credit report. If you resolve the lawsuit, then the lawsuit will never appear on your credit report, and the derogatory entry related to the debt will drop off of your credit report in a few years.
If, on the other hand, you let the lawsuit go through to a judgment, then you have just started a new 10-year time frame (minimum) for the debt—now a judgment—to remain on your credit report.