Identification

• A debt that cannot be collected in a court of law is considered "bad." Because lending institutions such as banks and credit card companies as well as individual lenders cannot sue in civil court for the repayment of uncollectible debt, creditors must write off -- or charge off -- the bad debt. Writing off a bad debt means marking its value down to zero.
  
  

Statute of Limitations

• Debt expires after a state-mandated period of time, which typically ranges from three to 10 years, depending on the type of debt owed and the state in which the debtor resides. For example, in Louisiana, credit card debt has a statute of limitations of three years, meaning creditors can only take action against debtors within three years of the last payment received. Once this period expires, the debt is uncollectible and the creditor cannot bring legal action against the debtor.
  
  

Consumer Credit File

• Even though the statute of limitations runs out, bad debt remains on your consumer credit file for up to seven years. Bad debt is reported as a potentially negative item and causes a drop in your consumer credit score. Having more than one bad debt on your consumer credit file may make you ineligible for attractive interest rates, which, typically, are reserved for consumers with higher consumer credit scores.
  
  

Fair Debt Collection Practices Act

• You should always check the statute of limitations on open accounts (credit card debt), written agreements, oral agreements and promissory notes. If a credit card company contacts you demanding the repayment of a bad debt, you can ask the creditor not to contact you in the future. If the creditor engages in harassing or threatening behavior, you may be eligible to sue under the Fair Debt Collection Practices Act.