When an original creditor owns an account that has gone into "default mode", the creditor is faced with 4 options.

1. Do nothing. The balance on the defaulted account is so small that it would cost the creditor more to collect the outstanding balance than what is left on the balance. At this point, the account is simply "written off" the books of the creditor and charged as a expense ( Bad Debt ) against income. This may occur when the debtor has died and the costs of recovering this debt through the estate is too time consuming and is not worth the effort and expense.

2. Attempt to recover the defaulted account before it is assigned or sold. Most creditors will attempt to recover this debt on their own within a period of 6 to 9 months before giving further consideration as to the collection of this debt.

3. Assign this defaulted account to a collection agency to collect. The original creditor is still the owner of the debt and the collection agency is acting in the capacity as an "agent" of the creditor. In many cases, the debt is NOT statute-barred and the collection agency will use the threat of initiating legal action to intimidate the debtor to settle the debt. Such legal action, hopefully, would result in a judgment against the debtor complete with the ensuing enforcement provisions including garnishment of wages and bank accounts and seizure and sale of assets. Whether this would, in fact happen, remains to be seen. In the eyes of the debtor, this is a very real possibility and has been used quite successfully in the collection of a debt.

4. Sell this defaulted account to a debt buyer for virtually "pennies on the dollar". When this debt is sold, the original creditor is no longer the owner of the debt. I think it would be safe to say that all debts sold to a "debt buyer" are "statute-barred", hence the reason a debt buyer can purchase them for almost virtually nothing. The debt buyer's investment in the debt is absolutely minimal, while the return on investment is potentially "huge".

If a defaulted account is assigned to a collection agency, the original creditor does NOT "write off" the debt because there is still the possibility of receiving some monies on this account. If a collection agency is unsuccessful in making any collection on this account, usually within a 6 to 9 month period, the debt is then returned to the original creditor. The original creditor now has 2 options. Reassign this defaulted account to another collection agency and the process starts all over again. Or, sell this defaulted account to a debt buyer. If this defaulted account is sold, the original creditor will "write-off" the debt on its books and this now becomes the "date of last activity". Generally Accepted Accounting Principles dictate that when a business shows an asset ( Account or Debt Receivable ) on its Balance Sheet, and the amount shown does NOT reflect the true value of the asset, the loss in value must be recognized as a charge (Bad Debt Expense ) on its Income Statement to more closely reflect the true earnings of the business.

Once a debt is sold to a debt buyer, it is NOT resold to another debt buyer. The investment in this defaulted account is so minimal that if a debt buyer cannot collect on it, it just dies a "natural death". Therefore, the "date acquired" now becomes the "date of last activity". However, if the debt buyer is successful in collecting some money on this defaulted account, this most recent collection activity now resets the "date of last activity" and simply prolongs the purge date on this "Collection Account"

Consider the following scenario. You go to a racetrack and wager a $2 bet on a horse that pays $20 to win. The horse runs dead last. You collect nothing. What's your ticket worth now? You guessed it. The same analogy works for a debt buyer.

In order for a debtor to prevent the extension of the "date of last activity" on a "Collection Account", the debtor has 2 options. Negotiate an agreement by making a lump sum payment in full settlement of the outstanding debt or make no further payments on this defaulted account.

-----------------------------------------------------------------------------------------------------------
Educating one Consumer at a time

Yes, much clearer. My confusion began with the "Tradeline" and the "Collection Account" line. I thought there was only one.

One more question....please? It's on the Collection Account line.

Can it remain even after the Tradeline is purged according to credit bureau policy? What if the debt keeps getting resold and the Collection Account is constantly updated? Or will it be updated?

I guess what I'm thinking of in terms of scenario is, if 10 years goes by since the account went into default and was written off, and 4 years since the Tradeline was purged, would the Collection Account still remain on your credit report, possibly preventing a refinancing of a mortgage or car loan, even if the derogatory account was off your credit report?

When an original creditor "writes off" a debt, there is no further activity on the account as a "Tradeline". This is known as the "date of last activity" as a "Tradeline". At this point, the creditor chooses not to pursue the collection of the debt any further and in the vast majority of the situations sells the debt to either a collection agency or a debt buyer. The 6 year purge POLICY of the credit bureau now "kicks in". That means that this debt is purged from the credit file of the credit bureau 6 years from the "date of last activity" as a "Tradeline". Once the debt is sold to a collection agency or a debt buyer, it now becomes a "Collection Account". That is why this account will usually appear both as a "Tradeline" and as a "Collection Account" on the same credit report. Any "activity" on this account, such as a collection made by the collection agency while the account is shown as a "Collection Account" will be shown as a "date of last activity" on the "Collection Account", not on the "Tradeline". Assuming that this collection by the collection agency is the only payment made by the debtor, this account will purge from the credit file 6 years from the "date of last activity" as a "Collection Account". That means that this account could purge as a "Tradeline" but remain on the credit file as a "Collection Account" until the 6 year purge rule "kicks in".

In Ontario, the 2 year SOL begins when the debt went into default or the creditor OUGHT to have known that the debt was in default. For example, let's say that a credit card has a payment date on the 20th of each month. A debtor receives his credit card statement in June and makes at least a minimum payment by June 20. The next month, the debtor receives his credit card statement for July and a payment is due by July 20. For whatever reason, the debtor does not make a minimum payment by July 20. Any payment made after this date is called a "late" payment for which he will be assessed a late payment fee but at this point, the account is not delinquent or in default providing he makes his minimum payment for July by August 20. If the minimum payment for July is NOT made by August 20, this account is delinquent or officially "in default". If no further payments are made on this account, the SOL starts on July 20 and runs for 2 years.

Trusting this explanation will help you better understand how the purge rules work together with the SOL.

-----------------------------------------------------------------------------------------------------------
Educating one Consumer at a time. .

Thanks Footloose. I know about the SOL and all that (I'm a paralegal and it applies elsewhere) but I think what is confusing me is the tradeline, the collection account, and when a creditor writes off an account.

I understand now why a tradeline can show multiple changes in date of last activity. Now, if the original creditor writes off the account and then a collection agency buys it, the date of the write off by the original creditor is when the 6 year countdown begins? Regardless of what's going on in terms of activity, such as the buying and selling of the debt by other collection agents?

The 2 year SOL begins on the date that the debt was first due? Not the date of write off?

I'm so sorry if I still don't get it. This has really confused me from the start.

I can see why you are as confused as an upside down cat. The SOL has absolutely nothing to do with the "date of last activity". In Ontario, the SOL is a legal Statute called the Limitation Act, 2002 and, in essence, defines the time period ( window ) in which one party can commence a legal action against another party.

The "date of last activity" is a term used exclusively by Equifax. TransUnion does not use this term when determining the time period when an item purges from their system.

A "Tradeline" can be assigned or sold many times, and each time that occurs, that constitutes an "activity". It can be done within or outside of the limitation period. It has no effect on the SOL Once a limitation period has been established ( i.e. in Ontario, 2 years ) there are only 2 events that can extend ( re-establish ) a limitation period.

1. By making a payment WITHIN the limitation period. For example, if the original limitation period was January 15, 2010 to January 14, 2012, and a payment was made on January 5, 2012, this establishes a new limitation period to January 4, 2014. On the other hand, if a payment was made on January 20, 2012, this payment was made OUTSIDE the limitation period. Therefore, a new limitation period is NOT established.

2. By making a SIGNED written acknowledgment of the debt WITHIN the limitation period. Any signed written acknowledgment of the debt OUTSIDE the limitation period does NOT establish a new limitation period

Any other activity, does NOT establish a new limitation period. Any activity on an account that is currently shown as a "Tradeline"
establishes a new "date of last activity". This could occur for several years. However, once ALL activity ceases on a "Tradeline", then the "Tradeline" is purged from the system 6 years from the "date of last activity".

When a "Tradeline" is also shown as a "Collection Account", the same rules apply. For example, let's say that a "Tradeline" is either assigned to a collection agency or sold to a debt buyer on April 10, 2008. If it was assigned to a collection agency and after 6 months, no payment was made on the account, the collection agency returned the debt to the creditor. On November 1, 2008, the creditor decided that they were not going to pursue the debt any further, therefore, "wrote the debt off their books". On the "Tradeline", this constitutes an "activity". This "Tradeline" will purge on October 31, 2014. The "Collection Account " will purge 6 years from the "date of last activity". The "date of last activity" as a "Collection Account" was October 9, 2008 ( the date the account was returned to the original creditor ). Hence, the "Collection Account" will purge 6 years from the date the account was returned to the original creditor, namely, October 8, 2014.

Using the same facts as stated above, if the creditor sold the debt to a collection agency or a debt buyer on April 10, 2008 and on the same date, wrote off the debt on its books, this would be the "date of last activity" as a "Tradeline". This "Tradeline" would purge on April 9, 2014. If the collection agency or debt buyer kept pursuing this debt and eventually received a payment on the debt on July 6, 2010 and no further payments were received after this date, this "Collection Account" would purge on July 5, 2016.

I trust that I have clarified your misunderstanding of a SOL and the "date of last activity" together with the purging of a "Collection Account".

Actually, I am still as confused as an upside down cat when it comes to this date of last activity and the 6 year purge. The way I read it, it means that if a debt is sold and resold within the two year SOL, the date of last activity is changed (updated). So then, rather than the day of last activity being the date in which the debt defaulted or last payment, the date of last activity might be the very day before the SOL kicks in because their might've been "activity" on the account that day, and because the date of last activity can't change after the SOL period.

This is how I read it, and it really wouldn't surprise me if I was DEAD wrong on this:

For instance, a debtor defaulted on the debt on Jan 1/09.

Creditor sold debt in April 1/09, updating the date of activity from Jan 1/09 to Apr 1/09.

Collection Agency resold debt in Dec 1/09, once again updating the date of activity from Apr 1/09 to Dec 1/09.

Collection Agency #2 resold debt on Aug 1/10, updating the date of activity from Dec 1/09 to Aug 1/10.

SOL is Jan 1/11. Date of last activity was Aug 1/10. Therefore, Equifax and Transunion will purge derogatory comments on Aug 1/17.

That would bring the total time the derogatory credit mark on your credit report to 7 years and 8 months.

I am thoroughly confused on this. I am going to call a credit assistance company for clarification, because everyone explains it differently.

Hello all, I just wanted to tke this opportunity to post a reply to a question I posted to Footloose. I think that this information might be of benifit to some other people on here and would hate to hoard it! haha Anyways again the credit belongs to Footloose on this info and is definetly a worthwhile read especially if you have moved or changed provinces from when you origionally defaulted on a loan. Take some time to read it, he knows his stuff.

"When a debt is incurred in one jurisdiction, but defaulted upon in another jurisdiction, the general common law principle that the courts have applied is the limitation period that is applicable is in the jurisdiction in which the debt was defaulted upon. In other words, if a debt was incurred in Alberta which has a limitation period of 2 years, but was defaulted in B.C. which has a limitation period of 6 years, the B.C. limitation period would apply."

"Equifax's POLICY is that all listed "Tradelines" will purge from the credit report 6 years from the "date of last activity". A payment on a listed "Tradeline" is considered an "activity". Therefore, a payment on an listed "Tradeline" would, by definition, extend the "last date of activity". However, making an offer on a listed "Tradeline" that is subsequently denied, is not considered an "activity" because nothing has happened. To constitute an "activity" would include raising an existing credit limit, making a payment on an account, assigning the debt to a collection agency, selling the debt to a debt buyer and writing off the debt by a creditor. "

Hopefully some others out there get as much benifit from this information as I did.

Thanks

Dryfter