There is a lot of confusion among indebted consumers as to which Statute of Limitations (SOL) applies in cases of unpaid credit card debt. Is it the SOL for the state in which the credit card company is based? Is it the SOL for the state you live in? What if you’ve moved since opening your credit card and incurring your debt? How about if your debt was incurred in multiple states or was sold to a debt collection company?

The simple answer is that in most cases either the SOL for the state you live in now or the state you lived in when you entered into the credit card agreement will apply. There are, however, caveats to this rule of thumb.

What is a charge-off?
A charge-off is when a bank writes delinquent debt off its books. The term can be used in conjunction with various types of debt, such as that originating from a credit card, mortgage, auto loan, etc.

Banks are legally required to charge-off debt when it reaches a certain level of delinquency, which varies by the type of debt. For example, credit card debt must be charged-off when 180 days delinquent, while a personal loan must only be 120 days past due. Debt is also charged-off when the debt holder passes away or files for bankruptcy.

Time is one of the most important factors of credit card debt. Your level of delinquency, the state of your credit report, whether you can be successfully sued for what you owe: each of these things depends on time. This in itself is not confusing; however, the nuances and state-by-state variations characterizing the relationship between debt and time are.

Various time frames are important to debt, but one of the most significant is its Statute of Limitations (SOL). This is essentially the time during which debt is relevant under the law. Before the statute of limitations expires, you can be successfully sued for amounts owed. Once it runs out however, suit can be initiated, but it will be thrown out of court if you make it clear that the debt is “time barred,” or older than the statue of limitations.

As we all know, all throughout 2009 credit card issuers raised interest rates on millions of consumers. The way you tackle high interest rates on credit card debt depends on your specific situation. If you have good credit, the first thing you want to consider is a balance transfer. Typically, you need a credit score of 660 or higher in order to be approved for a balance transfer credit card, and a score of 720 or higher to get the best offers. Once you are approved for one of these credit cards, you can transfer your balance from a credit card with a high interest rate to the new credit card with a lower rate. Most balance transfer credit cards offer 0 percent interest on the transferred balance for the first year of the agreement, but generally will charge a fee between 3 and 5 percent of your balance.

While the introductory rate is usually 0 percent, you also need to consider what the regular interest rate is after the introductory period is over. The key to determining how important the regular interest rate is for your situation depends on how long it will take you to pay off your debt. You can determine this by using a credit card payoff calculator. If you are able to pay off your debt before the introductory period is over, the regular interest rate is not of much significance to you. However, if you know it will take you much longer, you should carefully consider how much the regular interest rate will cost you over time.

Unfortunately some unethical companies and agents are taking advantage of the fact that so many consumers are in serious financial trouble.  Because of this, the term credit card debt consolidation is being abused, and is now being used to refer to both debt management and debt settlement.  So, you must be sure of what you are getting into before you sign on the dotted line.

Debt management should be considered if you are barely able to make the minimum payment on your credit card account.  If you opt for debt management, your card issuer will close your account and reduce your fees and/or the APR.  This will have a marginally negative impact on your credit.

There are three options for consumers who are looking for ways to get out of credit card debt.  They are debt management, debt settlement and bankruptcy.  You should explore all three options before you decide which one is the best for you.

Debt management should be considered if you are barely able to make the minimum payment on your credit card account.  If you opt for debt management, your card issuer will close your account and reduce your fees and/or the APR.  Debt management will have a marginally negative impact on your credit.

Once you reach the point where you have been delinquent for 180 days, by law, your credit card issuer will charge off your account, which will ruin your credit score and will remain on your credit report for up to seven years.  After your account has been charged off, your credit card issuer will likely sell the debt associated with the account you had with them to a third party, external collections agency.   Keep in mind that once you are near, or have reached the point where your account is charged off, you may be threatened with a lawsuit or actually sued if there is a reasonable belief that you have the money to pay off a significant portion of your credit card debt.
The bottom line is that not paying your credit card debt will lead to your credit being completely destroyed.  Given the adverse effects, if you have the money to pay your credit card bill you should do so and do so on time.  If you don’t have the money to handle your credit card debt, call your credit card company and try and work out an arrangement that is both affordable for you and reasonable to them.

If you don’t have the money to handle your credit card debt, first call your credit card company and try and work out an arrangement that is both affordable for you and reasonable to them.  If this is impossible you have three options.

The first is debt management and should be considered if you are barely able to make the minimum payment on your credit card account.  If you opt for debt management, your card issuer will close your account and reduce your fees and/or the APR.  Debt management will also have a marginally negative impact on your credit.

If you are less than 180 days delinquent, meaning that your account has not been charged off yet, you can simply call your credit card company (their phone number is on the back of your card) and tell them that you want to make a payment.  Keep in mind that because your account has gone into collections, you have some leverage, and can negotiate with your credit card issuer to get them to waive fees, lower the interest rate on your account, offer an affordable monthly payment plan, oreven settle for an amount less than you owe.

If your account has been charged off (i.e. more than 180 days delinquent), it is likely that your credit card issuer has sold the debt associated with your account to a third party – i.e. a collections agency.  Therefore, you need to call back the collections agency that has been contacting you.  You still have leverage if you want to pay the debt off, and can negotiate with a collections agency the same way you would with your credit card issuer.  A collections agency may also be willing to put you on a monthly payment plan, similar to what you were responsible for prior to your account being charged off.  As you decide how to best handle your credit card debt with any collections agency, remember that they will continue to harass you until you satisfy the debt or make arrangements to do so.

Credit card debt consolidation sounds like it might be a good option for you.  With debt consolidation you can move all of your credit card debt into a loan that carries an interest rate lower than what you are currently being assessed on your credit cards.  When you do this, your balance on your credit cards will become zero, making it appear as if you have more available credit on your credit report – this will raise your credit score as well. 

If you feel very confident that you will able to make the monthly payments on the loan you take out to clear your credit card debt, then you may want to use your house as collateral (i.e. get a secured loan).  However, if you think your medical condition or another life circumstance might prevent you from making monthly payments in the future, take out an unsecured loan to proceed with debt consolidation or leave the debt on your existing credit cards. You definitely do not want to put your home at risk in your pursue to save money by lowering the interest rate on your credit cards.

It doesn’t.  When you choose credit card debt settlement, you withhold payments from your credit card companies, intentionally defaulting on your account, if you have not already done so.  It’s this action that destroys one’s credit score: the charge-off or default record, not the settlement itself.  By defaulting on your credit card account, you hope that at some point your credit card issuers will be willing to settle for much less than what you currently owe them, at which point you will need to be able to offer them a large lump-sum payment.  It can absolve your credit card debts, but there’s no guarantee that your credit card companies will be willing to settle.  Credit card companies are by no means giving away free money.  Once the terms of the settlement are met, the record on the charged-off or default account will read “partially paid,” which looks better than never paid, but it will never read “fully paid” or “paid as agreed.”

Yes.  They can do both.  If your credit card issuer suspects that you have the money to repay your account they can and will sue you.  This usually happens you’re your credit card balance is $1000 or above. In most cases, if you become severely delinquent on payments, your credit card company will close your account and put it into collections.  But the worst thing that can happen if you don’t pay your credit card bill for a long period of time is your credit score being destroyed.  This will make it very hard for you to get approved for credit cards or any other type of loan in the future.    

There are a number of resources available to help you identify accredited credit counselors. We recommend that you contact the following agencies to find an organization licensed to do business in your state:

• National Foundation for Credit Counseling: (800) 388-2227
  • The National Foundation for Credit Counseling (NFCC), founded in 1951, is the nation’s largest and longest serving national non-profit credit counseling organization.
• Association of Independent Consumer Credit Counseling Agencies: (866) 703-8787
  • The AICCCA represents the common interests of member agencies to ensure that all who seek help with their debt problems receive the highest quality of assistance.

The following national, accredited credit counseling agencies can also provide you with counseling services:

Credit counseling is a process of educating consumers about personal financial management and how to avoid accumulating debts that cannot be repaid. The goal of credit counseling is to help consumers find ways to repay their debt through careful budgeting, reducing interest rates and better management of finances.

Credit counseling agencies usually recommend enrollment in a Debt Management Program (DMP) and therefore sometimes you will hear the terms ‘Credit Counseling’ and ‘Debt Management’ used interchangeably.

Filing for bankruptcy puts into effect an “Order for Relief” — known informally as the “automatic stay.” The automatic stay immediately stops most creditors from trying to collect what you owe them. So, at least temporarily, creditors cannot legally garnish your wages, empty your bank account, repossess your car, foreclose on your house or other property, or cut off your utility service or welfare benefits.

Before you get too excited it is important to know that creditors can ask the bankruptcy court to lift (remove) the Automatic Stay if the stay is not serving its intended purpose. For example, if you have no equity in your house, can’t pay your past-due mortgage bills, have no foreseeable way to make future home payments, and then file for bankruptcy a week before your house is to be sold in foreclosure, the bank/loan company will probably ask the bankruptcy court for permission to proceed with the foreclosure — and that permission will likely be granted. Sorry.

Chapter 7, entitled Liquidation Under the Bankruptcy Code, creates an orderly, court-supervised procedure by which a trustee takes over the assets of the debtor’s estate, reduces them to cash, and then makes cash distributions to creditors, subject to the debtor’s right to retain certain exempt property and the rights of secured creditors.

A Chapter 7 bankruptcy is often also referred to as a “straight” bankruptcy. Generally speaking, under a Chapter 7 bankruptcy, debtors give up most of their property in exchange for forgiveness of most of their debts. The property is given to a trustee, who liquidates (sells) it and distributes the cash to creditors based on certain rules of priority regarding the debt that is owed.

Unlike Chapter 7 bankruptcy, which requires people to liquidate (sell) their assets and use that cash to repay their debts, Chapter 13 bankruptcy requires debtors to restructure their debts and create a three to five year repayment plan. Under the repayment plan, the debtor will use his future income to pay off, in full or partially, his creditors. As such, Chapter 13 bankruptcy is applicable only to debtors with regular income. The process of a Chapter 13 repayment plan is supervised by an impartial trustee that is appointed by the court.

Your attorney will work with you to create a repayment plan that is likely to be approved by the court and is manageable based on your income. Repayment must begin within 30 to 45 days of starting your case. Creditors are required to adhere to the repayment plan as approved by the court, and are prohibited from collecting any claims against you.

Sometimes Debt Management is referred to as Credit Counseling, but credit counseling and debt management are different things. The reason why they are so often used interchangeably is because a Debt Management Plan or Debt Management Program (DMP) is a solution typically recommended by a credit counseling agency.

If you have significant credit card debt at an interest rate above 15% and you are struggling to make your minimum credit card payments, you may be eligible to enroll in a Debt Management Program (DMP).

Bankruptcy is frequently disfavored because of its far-reaching and long-lasting effects on a consumer’s credit report. Consumers that have a debt level that is impossible to handle based on their income should never take bankruptcy “off the table”, however, because it might offer the only way to a fresh start.

Typically, bankruptcy remains on your credit report as a negative item for either 7 or 10 years, depending on the type of bankruptcy that you complete. As a result, you may have difficulties:

The first thing that we should clarify is that debt settlement is NOT the same as debt consolidation. A lot of people are under the impression that it’s the same kind of program and that creditors willingly work with debt settlement agencies. Debt consolidation requires you to pay off all of your debt under one big loan and is only available to people with good or excellent credit. Debt settlement is quite different.

A debt settlement agency attempts to negotiate with your creditors to settle your unsecured debt (i.e. credit card debt, unpaid medical bills, store card debt) for less than what is currently owed. More specifically, in a debt settlement program you withhold payments from your creditors in order to get them to settle for a lower amount than what you owe them. That means that you will have to default on the creditors first, if you have not already done so. Additionally, there are no guarantees that your creditors will settle.