If you have stopped making payments on a credit card, personal loan, or other consumer debt, you will eventually receive notice that your creditor has “charged off” the debt account. When this happens, you may wonder how this affects your obligation to pay the debt or what consequences there may be. If you have had a debt charged off, the debt defense attorneys of Loan Lawyers can help you navigate your options.
Our foreclosure defense, debt defense, and bankruptcy law firm has been dedicated to finding effective debt relief solutions for clients in South Florida and across the state. Unlike other bankruptcy law firms, Loan Lawyers will never pressure you into filing for bankruptcy. Instead, our legal team takes the time and effort to thoroughly review your situation and identify the best solutions to achieve your goals.
If you have past-due debt, you don’t have to let your financial situation worsen. Instead, contact Loan Lawyers for a free initial case evaluation to learn more about your legal options for resolving your debt problems.
What Is a Charge-Off?
A “charge-off” is when a creditor removes a past-due account from its balance sheet. By charging off an account, a creditor assumes the debt will likely not be paid. Creditors will also notify the credit bureaus when they have charged off a bill.
In charging off an account, the creditor no longer considers it an asset. They can then write off the debt balance as an expense for tax purposes. Charging off bad debts also allows creditors to accurately represent their outstanding loans to investors, creditors, and government regulators. However, because a charge-off is merely an accounting process, a debtor is still legally responsible for repaying the debt.
When Do Bad Debts Get Charged Off?
Most creditors will charge off debt after 90 to 180 days of receiving no payment from the debtor. Before charging off an account, the creditor usually has their in-house collections department or a hired third-party collections agency contact the debtor to get them to resume payments.
After enough time has passed or if the debtor indicates they do not intend to make further payments, the creditor will charge off the debt. In most cases, the creditor will sell the account to a third-party debt collector since the debtor remains legally responsible for repaying the debt despite the charge-off.
How Much Does a Charge-Off Affect Your Credit Score?
When a creditor reports to the credit bureaus that they have charged off your account, it can significantly impact your credit score. Payment history makes up about a third of a FICO credit score. Therefore, a charged-off account will be a significant negative mark on your payment history.
Your outstanding balances to credit limits ratio also makes up an even more substantial percentage of your credit score. Again, this means not paying a charged-off account will negatively impact that portion of your score.
Should You Pay Off Your Charged-Off Accounts?
You should still pay off a charged-off debt if you have the funds. Haying a charged-off debt will not remove it from your credit report since negative items can stay on your report for up to seven years. But if you pay off a charged-off account, you can ask the debt owner to report to the credit bureaus that the balance has been paid. Having that note on your credit report can help lessen the damage caused by the charge-off.
How to Remove a Charge-Off as Bad Debt
A valid charge-off cannot be removed from your credit report or score. You can only lessen the negative impact of a charge-off on your credit score by paying the balance due on the debt to the debt holder.
However, charge-offs are sometimes inaccurately reported on people’s credit reports. If you have a debt account that was improperly charged off and reported on your credit report, you can contact the credit bureaus to contest the validity of the charge-off report.
Under consumer protection laws, credit bureaus must remove an item contested by a consumer from the consumer’s credit report and allow the creditor or debt holder to prove the validity and accuracy of the information within 30 days. When you contest a charge-off with the credit bureaus, you may need to provide documentation proving that you are not the individual to whom the account belonged or that you paid the debt.
Can You Be Sued for Charged-Off Debt?
A debtor is still legally responsible for the balance of the charged-off debt. The debt collector who purchased your account can still file a lawsuit to collect on that debt.
In Florida, the statute of limitations on a lawsuit to collect a debt requires a suit to be filed within five years of the date that you defaulted on your debt by not making payment. If you make a payment at any point after missing payments, you restart the five-year limitations period. Agreeing to a loan modification with the creditor or debtholder can also renew the limitations period.
Once the statute of limitations expires on a charged-off debt, the account holder can no longer file a lawsuit to recover the debt balance. However, this does not remove the charge-off from your credit report since it can remain on your account for up to seven years.
Contact a Debt Defense Lawyer If You’ve Been Sued Over Charged-Off Debt
If a creditor has charged off your debt or is trying to collect on a previously charged-off debt, get the legal help you need to protect yourself. Contact Loan Lawyers today for a free, confidential consultation to learn more about how a Fort Lauderdale debt defense lawyer from our firm could help you.
