Written by Scottsdale Bankruptcy Attorney Whitney G. Coats
The short answer….YES. If a creditor lists a debt as “Charged Off”, the debt has not vanished and must still be paid by you. When a debt goes unpaid for typically 180 days or more, the creditor does not want to continue to carry the unpaid debt on its books because it’s unlikely the debt will be paid in the future. In essence, the unpaid debt is “bad debt” and can’t be listed as a current asset, so the creditor “charges off” the debt for its own internal tax purposes, which has no effect on your obligation to still pay the debt.
The creditor may also, and often times does, sell the rights to collect the “charged off” debt to a collection company, who then starts to call you for payment. Often times a creditor will sell charged off debt for pennies on the dollar. For example, let’s say you’ve fallen on tough times and stopped paying your Bank of America credit card a few years back. You owe $10,000 on your Bank of America credit card and after pulling a credit report recently, you see Bank of America has listed the credit card debt as “Charged Off”. Interestingly enough, you’ve also started to receive a multitude of phone calls from Asset Acceptance, a collection company, for the unpaid Bank of America credit card debt. Asset Acceptance likely purchased your old credit card debt for $400-$500 ($.04 or $.05 per $1.00).
It’s important to keep a close eye on your credit report to ensure the debt that you have accrued is being reported properly. One misreported debt on your credit report can wreak major havoc on your credit score, which you of course do not want happening. If you do see a “Charged Off” debt on your credit report, remember that this debt isn’t going anywhere so you should address the debt in some form. Options include contacting the creditor/collection company to make payment arrangements or to settle the debt in a one-time lump sum payment if you’re able to do so. If you have other significant debts that you realize you’ll never be able to fully pay, contact my office so we can discuss your financial concerns and discuss what options will work best for you moving forward.
Article By: Whitney G. Coats, J.D.
Whitney G. Coats, J.D., Of Counsel, is a bankruptcy attorney who works with the Dana Law Firm in its Consumer Bankruptcy Department.