Credit 911: Secrets and Strategies to Saving Your Financial Life by Rodney Anderson

Author:Rodney Anderson [Anderson, Rodney]
Language: eng
Format: azw3, pdf
Publisher: Wiley
Published: 2010-07-27T16:00:00+00:00

The Truth about the Seven-Year Rule

Most people have heard that a negative item remains on a credit report for seven years, then falls off. If you insist on being right and you think you can suffer through seven years of poor credit, it could be worthwhile to avoid collections and refuse to pay—right? Wrong. The seven-year rule is not quite that simple.

The key to the seven-year rule is knowing when the clock starts and restarts.

Some people play a little game of cat-and mouse with their debts, opening bank accounts in other people’s name and taking jobs that pay cash under the table. Disappearing from the credit radar can be done, but it is not easy and ends up costing you more money than it saves. Think about it. You can’t even win the lottery without creditors showing up and demanding a piece of the action.

The seven-year rule is essentially a statute of limitations on an outstanding debt. After seven years have elapsed, the debt should theoretically disappear. However, you should know which debts fall under this rule and which ones do not. Debts that should disappear after seven years include tax liens you have paid, accounts assigned to a collection agency or written off as a bad debt, and any delinquencies or debts that are older than seven years. Some information, such as bankruptcy, remains on your credit report for 10 years. A separate rule applies to judgments filed against you as the result of lawsuits; that information remains for either seven and a half years or until the legal statute of limitations on the judgment has passed, whichever is longer.

The seven-year mark begins from the first date the status is changed to a collection account. However, some people believe a debt can be re-aged, meaning the seven-year clock begins to tick all over again if the account is assigned to an additional collection agency. A debt collector cannot legally re-age a debt; to do so would violate two federal laws, the Fair Debt Collections Practices Act and the Fair Credit Reporting Act. If you discover that a debt has been re-aged, you have to immediately dispute it and cite these two laws that the practice violates.

If you are inclined to play cat-and-mouse with a collection agency, keep in mind that once the debt is finally written off, it may be reported to the IRS and may become taxable income to you. Even if you can prevent creditors and collection agencies from finding you, the IRS is not as easy to deceive. It will find you, and it will collect the taxes you owe.

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