Can Credit Card Debt Become Uncollectible? Experts Say It Depends On Location

The average American carries an overall balance of about $6501 on their credit cards, according to Experian, and as more people search for debt relief, there are some questions about whether credit card debt can come uncollectible?

August marked a historic moment for Americans. A report from the Federal Reserve Bank of New York found that Americans owed a record $1.14 trillion on their credit cards. Credit card balances reportedly rose by $27 billion in the second quarter of 2024, which is a nearly 6% increase from a year ago.

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

Vonda Copeland, co-owner of Copeland Insurance Agency, told CBS News that with the current economy, high interest rates, and job insecurity, more people are relying on credit cards for basic needs. It’s a disastrous recipe, unfortunately, for falling behind on payments.

The average American carries an overall balance of about $6,501 on their credit cards, according to Experian, and as more people search for debt relief, there are some questions about whether credit card debt can come uncollectible. Turns out, it depends on a number of factors, including the credit card user’s location.

Factors That Lead To Uncollectible Debt

James Lambridis, founder and CEO of DebtMD said creditors usually sell unpaid debt to collection agencies from anywhere between three and six months. Most agencies try to retire anywhere between 20 and 40% of the original balance.

Credit card debt becomes uncollectible after three main factors: expiration of the statute of limitations, bankruptcy filings, and creditors decision to write off the debt.

When the statute of limitations are involved, it begins when creditors begin sending calls and letters to collect payment towards the debt.

“If the debt remains unpaid for the duration specified by the statute of limitations — usually between three to ten years depending on the state — the creditor loses the legal right to sue for repayment,” Kristy Kim, CEO and co-founder of TomoCredit said, adding that the debt legally becomes time-barred and legally uncollectible.

Even though creditors lose their right to sue or garnish wages against borrowers when debt becomes uncollectible, Kim says debt can still appear on your credit report and impact your score for up to seven years.