- One scenario in which a debt could become uncollectable is when the statute of limitations runs out. Every debt has a statute of limitations associated with it. This is the amount of time in which the debt is legally collectible. If this amount of time passes without the creditor getting a judgment or collecting the debt, the creditor can no longer legally enforce you to pay the debt. Every state has its own statute of limitations laws. Some states have limits of two years while others have limits as long as 15 years.
- A strategy that is commonly used in the debt industry is that of debt settlement. A debt settlement is a method that involves paying a lump sum of money less than what you owe, and the creditor accepts it as payment in full. For example, you owe $10,000 on a debt and the creditor accepts $6,000 to close your account. At that point, the remainder of the debt is not collectible on the part of the creditor.
- Another scenario that could lead to a debt not being collectible is a bankruptcy discharge. When you file for Chapter 7 bankruptcy, the court issues an order of automatic stay. Once this order is issued, it means that your creditors can no longer try to collect debts. Then at the end of the bankruptcy process, the court will issue a debt discharge, which legally erases your debts included in the bankruptcy. Once this happens, your creditors can never try to collect on the debts again.
- Even if a debt is not eligible for collection, it does not mean that the creditor cannot still hurt your credit. When an account is written off as a bad debt, it shows up on your credit report as a negative item. These negative items can stay on your credit report for seven or 10 years, depending on what type of item it is. This can make it hard for you to get other types of credit in the future.
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