Sometimes a creditor will agree to forgive a debtor all or part his debt. This may happen for a number of reasons. For example, the creditor may have worked out an alternative payment method from the debtor, or the creditor may fear the debtor will fall into bankruptcy and the debt will be dismissed. Depending on the actions of the creditor, the debt may or may not be posted on the debtor's credit report.
Credit Report
A person's credit report contains all the information that a credit reporting bureau--a financial services company that rates people's creditworthiness--has collected about the individual's credit history. Although some of this information is culled from public records, most of it is reported directly to the credit reporting bureaus by creditors, who will notify the credit reporting bureaus of new debts they have issued and update them on the status of debts.
Forgiven Debts
Someone who has his debt forgiven may or may not see this noted on his credit report. If the creditor has previously notified the credit reporting bureau that it issued a debt to the individual, then the creditor will likely choose to update the bureau on the status of the debt. However, if the creditor has not notified the bureau, then it may not choose to inform them that it forgave the debtor of an old debt.
Reporting Timeline
Technically, a creditor can report any debt, of any status, to a credit reporting bureau. A creditor is not legally bound to only report a debt after it is issued or while it is still outstanding. A creditor can report this debt to a credit reporting bureau for the first time even after he has forgiven it. This record will remain on the person's credit report for a maximum of seven years.
Reporting Debts
Even if a debt has been forgiven, a creditor is not legally required to report the debt to the credit reporting agency at all. Rather, the creditor can choose to keep the debt private. In addition, the creditor can report the debt in a way that will not affect the person's credit score so negatively. For example, the creditor could tell a credit reporting bureau that a debt was paid in full when in actuality it was forgiven.
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