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February 2005 - Credit Bureau could not Abolish Debtor’s Obligation to Pay Creditors

Credit Bureau could not Abolish Debtor’s Obligation to Pay Creditors

☳ by Adam Aspilla

There is one question that is often asked of me in the years I’m dealing with clients: “why do collection agents still hound me of my unpaid debts of more than seven years when my credit bureau file no longer show I’m indebted to any creditor?”


This question comes up often because it is a common misconception by many that unpaid debts recorded in credit bureau are extinguished after their files are cleared usually after seven years.


Credit bureaus are credit-reporting agencies that are separate, distinct and operate independently from creditors. They reflect consumers’ debts and payment habit reported by member-businesses and organizations. Files are kept up to seven years for first time bankrupt and up to fourteen years for multiple bankruptcies. Debts other than bankruptcies are kept less than seven years.


Although the credit bureau may wipe out a person’s unpaid debts on the file after numbers of years have elapsed, it does not mean however, that the said person is released from his/her obligation to pay creditors in accordance with the terms and condition agreed upon, because credit bureau’s actions of clearing debts on file are not binding to creditors.


If a debtor did not receive a collection letter or call from creditors or their agents for quite some time, it does not mean creditors condone the debts.


The collection activity is usually suspended when a debtor moved residence and employment. Since creditors are in business to earn not to lose, upon locating a debtor’s new address or employment, they would resume collection activity or to enforce garnishment of wages or seizure of bank accounts if there was a court order earlier.


To further illustrate this point: there was a bewildered caller who needs an answer on the status of his credit bureau report. He related to me that a week ago he requested a copy of his credit bureau file. His file was clean for his unpaid debts of more than seven years were already removed. To his surprise, after ten days, when he applied for a mortgage, the lender found out that there was a judgment reflected on his file.


I simply pointed out to him what I have explained above the possible reason of the derogatory remark on his file after it was found clear just about ten days earlier.


To avoid being harassed by your creditors down the road, you should not wait for seven years to clear your debts via credit bureau, for their action of clearing your debts is not binding to your creditors, therefore, your obligation to pay is not abolished.


Depending on your financial circumstance, consider debt consolidation, credit counseling, negotiation, consumer proposal or bankruptcy as a last resort. 


Adam Aspilla is a Senior Financial Counselor of the Debt Clinic of Canada Inc. and the author of the book, You Can Negotiate All Your Debts. He also writes a biweekly column, “What Matters In Life” in “Taliba Newspaper. For free initial, professional and confidential consultation, please call 905-306-7572.