Responsibilities of Paying a Charged-Off Debt

April 4, 2008 By Tisha Kulak

In an effort to clean up your credit score, you may be faced with some charged-off debts on your credit report. It is important to know what a charged-off debt is and how to deal with it. For some people, it seems like it is just a forgotten debt they are no longer responsible to pay. However, that is not the case at all.

A charged-off debt occurs when money is owned to a company by an individual and goes past due.  After the company tries to collect a debt repeatedly but fails to secure the repayment, the company will then “write off” the debt, which is considered to be income for the company and therefore an asset.. When the company decides to write off the debt, they will reduce the total amount of profit for the company and lower company taxes.

The charge-off is reported to the credit agencies and ultimately will make it harder for a consumer who has charged-off accounts to get other loans or secure credit in the future. A charged-off debt will remain on a credit report for up to 7 years and the consumer is still bound to pay the amount in full. However, once a debt goes into a charged-off status, penalties, interest, and other fees can increase significantly, making it even more difficult to repay the original loan or payment amount.

Generally the terms of what happens when an account is placed in charged off status can be found in the tiny print on the initial contract signed in order to get the loan or the line of credit. Even after the status of the loan has been changed to a charge-off, the original agreement and terms still apply and are the responsibility of the consumer. When the consumer decides to work through the charged-off debt, they will need to find out what the statute of limitation is on the original debt based on the state in which they live and understand the type of debt they have. The statute of limitations is usually between a 3-6 year timeline and after that period expires, the consumer is not longer required by law to repay the money. By signing any additional agreements, making a payment, or by simply validating the debt, could restart the statute of limitations timeline, lengthening the time period the consumer is still legally required to pay the debt.

Be forewarned, even if the debt is passed the time of the statute of limitations, a debt collector can still legally pursue the consumer for repayment and the original lender can still attach interest and penalties onto the total amount of the original loan. Depending on the applicable laws, creditors can attempt to garnish your wages, place a lien on your assets, or take other measures to recover the money owned.

Consumers, who decide to make payment arrangements or agree to pay a certain amount of money if the company will agree to consider the amount payment in full, must get any agreements put in writing by the company. Negotiating directly with the original lender may produce better results than working with a debt collector, who usually makes money based on the amount collected. If the debt is negotiated and considered to be paid in full, the negative mark will still remain on the consumer’s credit report. In some cases, the lender may be willing to remove the account from a credit report if paid in full. Only the original lender can initiate this action. A debt collection agency can not, despite what they may claim.

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