Are Charged Off Debts Still Collectible?

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When a debt is charged off, it means the creditor has written it off as a loss because they do not expect to collect it. This often happens after several months of non-payment. However, the debt is still legally owed, and the creditor may sell it to a collection agency. Under the Fair Debt Collection Practices Act (FDCPA), there are specific rules and limitations on how debt collectors can attempt to collect debts, especially after the statute of limitations has expired.

What does “Charge-Off” mean?

Generally a Charge Off is a notation on a credit report that a lender places on an account when it has gone unpaid for a period of time. The account has moved from the asset side of the creditors balance sheet to the deficit side.

Credit card debt is often subject to charge-offs, and under the Fair Debt Collection Practices Act (FDCPA), consumers have specific rights when dealing with debt collectors. This includes understanding the statute of limitations for credit card debt, which dictates the timeframes within which creditors can pursue legal action against consumers.

A Charge Off v a Write-Off. Is Charged Off Debt Collectible?

A charge-off and a write-off are two terms that are often used interchangeably, but they have distinct meanings in the context of debt collection. A charge-off occurs when a creditor determines that a debt is unlikely to be paid and writes it off as a loss on their financial statements. This does not mean that the debt is no longer collectible, but rather that the creditor is acknowledging that it is unlikely to receive payment.

On the other hand, a write-off is a more formal process where a creditor agrees to forgive a debt and no longer pursue collection. This can be done through a settlement agreement or a court order. In this case, the debt is considered uncollectible and is removed from the creditor’s financial statements.

It’s essential to note that even if a debt is charged off, it can still be collectible. The creditor may sell the debt to a collection agency or continue to pursue collection efforts. However, if a debt is written off, it is generally considered uncollectible, and the creditor will no longer pursue payment.

The Impact of Charge-Offs on Your Credit Report

A charge-off can have a significant impact on your credit report and credit score. When a creditor charges off a debt, it will typically report the charge-off to the three major credit reporting agencies: Experian, Equifax, and TransUnion. This can lead to a significant decrease in your credit score, as charge-offs are considered a negative mark on your credit history.

The impact of a charge-off on your credit report can vary depending on the amount of the debt and the length of time it has been outstanding. Generally, a charge-off will remain on your credit report for seven years from the date of the last payment. During this time, it can affect your ability to obtain credit, loans, and other financial services.

A Charge Off v a Write-Off.  Is Charged Off Debt Collectible?

If a creditor has written off a loan, normally that means that the loan has been forgiven. In contrast, a “charged off loan” is still collectible, and consumers have legal rights under the Fair Debt Collection Practices Act (FDCPA) when dealing with a debt collector.

How to Handle a Charge-Off from a Credit Report

To handle a charged-off debt, you have to view the debt at two levels – the credit impact of the charged off debt and the balance that is owed on the debt.  Often, I get calls from consumers about a charge-off because they want to improve their credit.  A credit repair company might attempt to remove the adverse credit reporting, but removing a debt from your credit report without addressing the balance that is owed.  In that situation, the debt is still collectible, and you may still be sued for it.  It’s like putting a band-aid on an infected wound – a consumer should address the balance that is owed.

Making a partial payment on a debt can reset the statute of limitations in some jurisdictions, potentially allowing creditors more time to sue and affecting the legal standing of the debt.

The impact of settling the debt on credit scoring will vary depending on the terms of the settlement, as well as your other scoring factors.  In most instances a settlement will not remove prior bad credit history because creditors are required to report information accurately on a report; if a consumer missed payments, generally a creditor must show those payments to be missed after the balance is paid off.  However, settling a balance will show that the consumer no longer owes a balance, and allows the consumer to add new positive credit information in the future.

What About a Charge Off that is Past the Collection Timeline (Statute of Limitations)

Information can show on a credit report normally for 7 years. The limitations period begins based on the timing of missed payments, and acknowledging an old debt or making a partial payment can reset this period. In contrast, in Florida, a creditor can only sue on most debts for 5 years (called the “statute of limitations”). If a debt has exceeded the time when it could be sued on, a consumer should take caution in considering settlement. Making a payment on the debt can re-extend the statute of limitations.

One added consideration is that even if a consumer who lives in Florida, the loan may be subject to a contract that incorporates a different state’s laws. This could affect the statute of limitations period.

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