Can credit card debt become uncollectible? It depends on the location

August was a historic moment for Americans. AND report from the Federal Reserve Bank of New York found that Americans owe a record $1.14 trillion on their credit cards. Credit card balances reportedly increased by $27 billion in the second quarter of 2024, a rise of just about 6% from the previous 12 months.

Unfortunately, credit card delinquency rates are also higher. In the second quarter of 2024, 7% of households reported being seriously delinquent on their credit cards (90 days or more) in comparison with 5% at the same time in 2023.

Vonda Copeland, co-owner of Copeland Insurance Agency, he said that with the current economy, high rates of interest and job uncertainty, increasingly more individuals are using credit cards to satisfy basic needs. Unfortunately, it is a terrible recipe for defaulting on payments.

According to them, the average American has a complete balance on their credit card of about $6,501 Experimentand as increasingly more people seek debt relief, questions arise about whether credit card debt can become uncollectible. It seems that it depends on many aspects, including the location of the credit card user.

Factors resulting in bad debt

James Lambridis, founder and CEO of DebtMD, said creditors typically sell unpaid debts to collection agencies inside three to 6 months. Most agencies attempt to withdraw between 20 and 40% of the original balance.

Credit card debt becomes uncollectible after three predominant aspects: the expiration of the statute of limitations, a bankruptcy filing, and a call by creditors to discharge the debt.

If there may be a statute of limitations, it begins when creditors start sending notices and letters looking for payment for the debt.

“If a debt remains unpaid within the statute of limitations – typically three to 10 years depending on the state – the creditor loses the right to sue for repayment,” said Kristy Kim, CEO and co-founder of TomoCredit, adding that the debt is legally time-barred and is legally uncollectible.

Even though creditors lose the right to sue borrowers or collect their wages once the debt becomes uncollectible, Kim says the debt can still appear on your credit report and affect your rating for as much as seven years.