What it Really Means When a Debt is Charged Off

Many people will obtain a copy of their credit report and feel a sense of relief when they see that a certain debts have been charged off.  This sense of relief comes from their understanding that once a creditor decides to charge off  a debt that they can no longer pursue it.  So, a charged off debt means no more collection calls and certainly no more risk of being sued, right?  Not right.  In fact, it is totally wrong.

The decision to charge off (or “write off”) a debt is a decision that all creditors make based upon their own internal company policy.  Many creditors will charge off a debt once it is 90 -180 days past due or when they determine that it is no longer a collectible debt.  What the charge off means for you and what it means for the company are two totally different things.  For the company the charge off simply means that your account is no longer considered an asset of the company.  It is now considered a loss and they can take a tax deduction for the loss.

For you, the charge off really doesn’t change much.  You still owe the debt and the creditor is free to continue to try and collect on the debt.  If you do happen to pay the debt then the creditor/company will have to report your payment as an asset or income for the company.  What it likely means for you is that you will no longer will be dealing directly with the original company but will now be having to deal with a debt collector or a third party debt buyer who has purchased your debt.

With the rise in the debt buyer industry we are seeing many credit card companies and banks package large numbers of delinquent debts and sell them for pennies on the dollar and sell them to debt buyers like Midland Funding, LVNV, Portfolio Recovery, and CACH, LLC.  These debt buyers then take the debts and promptly sue on them.  This leads people to come into my office totally flabbergasted as to how it is possible that they were sued on a charged off debt.

So, as you review your credit report, if you see an old debt that has been charged off, understand that even though the debt may appear dead and gone, it really is alive and well.