Does Debt Erased After 7 Years?

A question I get too often…

Unfortunately, the answer is NO.

People sometimes confuse between two different notions – Credit Reporting Time Limit and Statute Of Limitations.

Credit Reporting Time Frame
Per the Fair Credit Reporting Act (FCRA), most negative information remains on your credit report for a maximum of 7 years from the date of first delinquency, with some exceptions. This reporting time limit has nothing to do with your liability towards your debts. It only defines the allowed time frame for reporting your debts whether they are paid or not.

In fact, even debts which have been paid in full continue to show up on your credit report for the full 7 years!

The effect of these negative items on your credit score diminishes with time. Up to 70% of your FICO score is determined by negative (as well as positive) information from the previous two years.

The credit reporting time frame clock cannot be restarted, and after the defined reporting time has elapsed items fall off your credit report whether the debt is paid or not. For a complete list of the reporting time period please see this.

Statute Of Limitations (SOL)
The Statute of Limitations (SOL) is the time frame to bring lawsuit against you. It is defined by state laws and varies from state to state.

The SOL also has nothing to do with your liability to pay off your debts. Even if the SOL has passed, that does not mean that the debt is erased. It only means that if you’re sued for the debt, you can use the SOL as an affirmative defense in court.

If you are sued after the SOL, you will need to show up, and tell the judge that the debt is time barred as it is beyond the SOL.

Unlike the Credit Reporting Timeframe, the SOL clock is restarted every time someone does something about the debt. For example, if a collection agency contacted you a year ago to collect the debt and you said something like “I don’t have any money right now“, that could be seen as an admission that the debt is yours, and in some states, that could restart the SOL clock!

Conclusion

• Debt is not erased after 7 years.
• Debt is NEVER erased.
• Paid & Unpaid debts are reported on your credit report for 7 years.
• Debts become time bared after the SOL
• When sued, you can sometimes use the SOL as an affirmative defense in court.