My Debt has been Charged Off: Do I Still Have to Pay?

melted cards

If you have recently discovered that one of your old debts is now listed on your credit report as ‘charged off,’ you may initially get excited and think that you no longer owe any money to that creditor. After all, ‘charged off’ sounds like the debt has essentially been written off, with no further action required.

Alas, the name in this case is often very misleading and causes a lot of confusion among debtors.

What is a Charge Off, Anyway?

Credit card companies are businesses who have a bottom line. Any time one of their debtors goes more than (usually) six months without making good on the money they owe, that particular debt is considered to be charged off. What this means is that the company has deemed your debt as a ‘loss’ for them rather than a ‘profit’, as you haven’t made good on your payments.

Essentially, a charged off debt is a creditor’s way of taking that debt off their books as an asset, which they are required to do with debts that seem likely to remain unpaid. And, while this may sound like you’re off the hook, rest assured that you are not.

Any debt by definition is owed until it is paid in full. Just because your creditor wrote your debt off its books doesn’t mean they won’t come after you for the money. They can still call you and send you requests in the mail for the debt that you owe.

Any debt that becomes classified as charged off immediately gets reported to all of the credit reporting agencies and will mar your credit report and lower your credit score significantly. A charged off debt that you simply fail to make good on looks worse on your credit report than almost anything else you can do.

With a charged off debt in your financial history, it will be next to impossible for you to make any purchases with any kind of credit card (your original charged off account will immediately be closed, naturally). Renting an apartment may be off the table for someone with a long-standing, unpaid debt as well. A history of late payments that you eventually made good on looks much better to anyone who has any interest in your credit worthiness than if you have a charged off debt that you simply choose to not pay.

Any charged off accounts that you may have will remain on your credit report for seven years. You may be thinking, “Ok, I will just wait seven years and then I can wipe my hands clean of that debt.” However, seven years is quite a long time to live without being able to make any kind of purchase that involves a loan or credit check.

What are My Options?

Even though the amount you owe may be a significant chunk of money, it’s always best if you make attempts to pay it back. You can accomplish this by working with an attorney who is experienced in debt resolution. Often, the total amount due can be negotiated down, and a reasonable payment plan can be put into place so that you can pay back the debt as soon as your finances allow. The other option (ignoring the debt and waiting for it to fall off your credit report in seven years) is highly inadvisable, and will undoubtedly affect your future ability to acquire credit, jobs, a place to live, work promotions, insurance, and more.

Image credit: Frankieleon

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One Response to My Debt has been Charged Off: Do I Still Have to Pay?

  1. Pingback: Collection Agency vs Original Creditor: Who Should You Pay? | Veitengruber Law

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