What is a charge off?

What is a charge off?

| Aug 25, 2020 | Firm News |

If you were late on credit card or loan payments for several months, you may have seen a charge-off on your credit report. But charged-off debt can still add to your liabilities and cause other problems. Dealing with it, however, can help prevent insurmountable debt and bankruptcy.

Charge-off defined

 

A charged-off debt is removed from the creditor’s balance sheet. This typically happens when a payment is 90 to 180 days past due because creditors assume that the debt will remain unpaid. The debt is marked as a charge off because that delinquent debt cannot remain on the creditor’s records as a current asset.

A charge-off does eliminate the debt you owe. It stays in existence and you remain liable for it. Creditors may contact you to collect this debt.

Credit reports

Creditors report charged-off accounts to credit bureaus. This may reflect poorly on past payment histories which also has a negative impact on credit scores.

An unpaid charge-off can make it harder to make a major credit card purchase, rent an apartment or apply for employment. These may stay on credit reports for seven years.

If the charged-off account is paid off, negative information will stay on credit reports and may show up as a paid charge off. This may help improve scores but serve as a warning to creditors.

Addressing charge-offs

Creditors and debt collectors must provide written details in a validation notice which must be issued within five days after the first contact with you. It includes the amount owed, the original creditor’s name and information on how to dispute the debt.

You should review the notice to assure the account is yours and verify that it is still unpaid. Determine whether the debt is within the statute of limitations. In Maryland, a creditor must go to court within 3 years and has 12 years to collect it.

Avoidance

Creditors may negotiate a reasonable payment plan to obtain some of the money owed to them. You should contact your creditors as soon as possible before the next payment is due.

A monthly budget based on recurring expenses and your goals are helpful. If possible, build an emergency fund to cover expenses for at least six months.

An attorney can help find options to deal with this debt. They can also use bankruptcy if the debt becomes unmanageable.