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creditor charged off my debt – do I still owe the money?

by Dorota Trzeciecka on October 19th, 2011

Yes, you do.  Many people mistakenly believe that, when a debt is charged off,  they no longer owe the money.  A charge off, or a write off typically occurs when the debtor had not made a payment on the account for more than 180 days.  Think about charge off  in terms of a personal loan that you would make to a friend or a family member.  If you lend money to someone and they  do not re-pay you, you can take a loss for that unpaid debt on your personal tax returns.  The creditors can do the same. Charge off  is an accounting term used by creditors for tax purposes to remove the bad debt form their balance sheet.  It does not affect the validity of the debt.  Just like you could report a bad debt, the creditor can report the loss for the unpaid debt on their tax returns.

It does not mean however that the debt was cancelled , and you no longer owe it.  In fact, the banks will try to collect on charged off debts long time after the charge off, either through their own collection departments, or by hiring a collection agency that will usually tuck on their own commission, on top of the debt, or may offer you a settlement for a lower amount.   It is also a common practice among creditors to sell the debt to a debt buyer for a few pennies on the dollar, and have them incur the cost of collecting on the debt.

A  charge off  has serious consequences on your credit and affects your ability to obtain credit and borrow money.  Per The Fair Credit Reporting Act, charge offs stay on your credit report for 71/2 years from the date of the delinquency.


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