You may be able to knock a few negative items off of your credit report by disputing old debts that are no longer due, and watch your credit score rise as a result!

Reporting invalid “out of statute” debt as currently collectible obligations is an old bill collector’s scam. If you fall into this trap, you could be tricked into paying money you don’t owe.

Did you know that consumer debt that has been in default for more than six years is not collectible using any sort of lawsuit or legal process, and therefore should not be reported on your credit report? However, there is an important exception to that rule in the case where debt is owed as a result of a lawsuit judgment that was issued at some time within that six-year period. I’ll explain how this exception applies later in this article.

Many Americans have several “out of statute” debts –debts that should not be listed as currently due on their Experian, Transunion or Equifax credit report. These debts are too old to be carried on the credit report. In these cases, you should write to the collection bureau that lists the debt and dispute the entry so that the debt no longer appears on your credit report from that credit reporting bureau.

Q: How do bill collectors get away with this?

A: Once a debt has been in default (unpaid) for six years, the statute of limitations to collect the debt has expired. The creditor cannot file a suit to collect the debt once the debt is too old, as having been in default for six years. However, to trick you into thinking that the creditor has additional time to collect upon the debt, the creditor will (out of thin air) make up a phony date called the “charged off date”, and put that phony “charged off date” on your credit report as the date of default.

Q: Why is my credit score important?

A: The benefits of improving your credit score are undeniable; improved employment prospects, cheaper car insurance, and low-interest rates for future car loans and mortgages are among the perks of a better credit score. A FICO credit score of 700 or higher is ideal for the best of benefits –850 is considered “perfect” credit.

Q: My credit is pretty rocky. Will disputing “out of statute” debts really help?

A: If your credit is already really troubled with many enforceable unpaid debts, then disputing a few here and there might not be that helpful–a bankruptcy filing might be the right call. We can help you determine your best course of action, contact us at www.washingtonbankruptcy.com. But if your credit is reasonably clean, you should make a habit of securing your free credit report each year, and checking it for errors. Even after a bankruptcy filing, you should get in the habit of making an annual review of your credit report. You can obtain your free credit report at www.annualcreditreport.com.

Q: Why do creditors report “charge off dates” as occurring months or years after the date you defaulted on the debt?

A: It is a trick to fool you into believing that an aged and invalid debt is still valid and collectible. Actually, “Charge off date” is a term of no legal significance. So definitely make a written dispute of all credit report debts that have been unpaid and in default for six years or more, regardless of the “charge off date” reported in your credit report.

Q: Can you give me an example of a phony “charge off date” for an “out of statute” debt?

A: Let’s assume that you received medical or dental services on May 20, 2005 (8 years ago) that were billed to you on June 1, 2005. Let’s assume that you made one or two small payments and never paid again after August 1, 2005 (7 years 9 months ago). Finally, let’s assume that as of today, May 22, 2013, the remaining unpaid medical/dental bill balance appears on your credit report as “charged off” on December 31, 2009 –only 40 months ago. What should you do?

In this example, you should make a written dispute to each credit bureau that lists this debt as still due–based on your current credit report that you obtained for free at www.annualcreditreport.com–so that the debt can be removed from your credit report for each credit reporting bureau that lists the debt as due. The date of default for the debt was really July 1, 2005, the last date you made a payment that did not pay the debt in full. The last date that the creditor could file suit to collect the debt was six years later on July 1, 2011. You have been “free” of the debt for 1 year and 10 months, since July 1, 2011.

Q: What should my “out of statute” credit report dispute letter say?

A: The credit report dispute letter should be sent to each of the three credit reporting agencies: Equifax, Transunion, and Experian. In addition, I always recommend that you include a copy to the original creditor. In order to address the example debt we examined above, I suggest that your letter contain the following language: “If I even ever owed this debt reported as owing to _____, I dispute that I presently owe the debt. If I ever owed it, then I defaulted upon this debt on July 1, 2005 and the six-year statute of limitations to commence a collection lawsuit passed on July 1, 2011. Today is May 22, 2013. No lawsuit was ever commenced. This debt was erroneously reported on my credit report as a valid and collectible debt having a “charge off date” of December 31, 2009. This entry is thus not accurate because the debt would no longer be collectible under local law as it is an out of statute debt. I require that you remove any and all reference to this debt from my credit report at once and that you recalculate and amend my credit score without the effect of this debt computed into the calculation. Please provide me with a copy of the amended credit report within 30 days of the date when this letter was first written as shown above.”

Q: Do Sporadic Payments “Reset” the Default date?

A: Probably not. I do not believe that must judges would rule that a few sporadic payments here and there over the years would rescind your default on the debt. Back to our example: medical and dental bills are almost always “due upon receipt”. When you did not pay the debt off in full within a short period following the date you received the initial bill on June 1, 2005, you were then in default upon the terms, even if the medical or dental creditor did not “declare” you to be in default until 54 months later on December 31, 2009.

The “charged off date” is just the date at which the creditor declared the bill not readily collectible for its own internal accounting purposes, and in most scenarios the creditors choose an arbitrary and ridiculously late “charged off date” to fool you into thinking that the default date (and thus the commencement of the running of the six-year statute of limitations) occurred much later than was truly the case.

Q: But I always thought “Charged off” means “forgiven”?

A: Some folks innocently confuse “charged off” as meaning “forgiven”. Please, don’t make this mistake. “Charged off” does not mean “forgiven”, “written off” nor “pardoned”. If you see “charged off” on your credit report for a relatively recent debt, do not take comfort! The debt is still collectible by lawsuit for six years from the date that you were supposed to pay the debt—the amount of the debt that you did not pay. And there are more problems.

Q: How long can I be pursued for a valid debt?

A: If a debt is valid—the debt is still due and payable within six years of the date of default—the creditor can file a lawsuit and obtain a judgment provided that the lawsuit is filed with the court before the six-year period expires. Once a judgment is obtained in the creditor’s lawsuit to collect the debt, the creditor has ten years after the date of the judgment to pursue and garnish you based upon the lawsuit judgment. There is even worse news. After the first 10 year period draws to a close, the creditor can ask the judge to extend the judgment for an additional 10 years (for a total of 20 years!). That’s right; the creditor can have up to 20 years to garnish and collect from you.

Q: When is bankruptcy the best choice to recover and rebuild my financial life instead of disputing credit report contents?

A: If you have no hope of repaying your existing debt off within 24 months, consider a bankruptcy filing. Your credit can often return to health with amazing speed! To learn how, please read my article entitled, “Rebuild your credit score after bankruptcy”. Even better, please contact my offices to make an appointment for a free, confidential, personal consultation so that I can advise you about your individual circumstances. Don’t wait; the creditors won’t go away unless you act now!

Throughout our lives, we must remain ever vigilant of our credit report contents in order to protect our financial future. Remember, you can dispute any and all debts that have been in default for more than six years—regardless of the date reported by creditors as the “charge off date”.