What is a Charge-off?
Also known as a Profit and Loss Write-off, a charge-off or chargeoff is the declaration by a creditor that a debt is unlikely to be collected. This occurs when a consumer becomes severely delinquent on the debt. Traditionally, creditors will charge-off an account after six months (180 days) without payment. In the United States, Federal regulations require creditors to charge-off installment loans after 4 months (120 days) of delinquency, while revolving credit accounts must be charged-off after 6 months (180 days).
What is the purpose of a Charge-off?
The purpose of charging off an account is to give the bank a tax exemption on the debt. The creditor will write the debt off its’ books as a loss. The charge-off, though, does not free the debtor of having to pay the debt. The creditor may still continue perusing the charged off debt or sell the debt to a collection agency.
Am I still Liable for a debt after it is Charged off?
Yes. While a charge-off is considered to be “written off as uncollectable” by the creditor, the debt is still legally valid. The creditor has the right to collect the full amount of the debt, plus interest and fees, for a time period permitted by the laws of the state in which the consumer resides. To see if you are still liable for a charged off account, check your state’s Statute of Limitation of your type of debt.
How does a Charge-off impact my credit report?
A charge-off is one of the most adverse factors that can be listed on a credit report. It will be listed as such on the debtor’s credit reports. The item will include relevant dates and the amount of the bad debt. A charged off account can lower your FICO score by as much as 120 points.
What can a company do to collect on a charged off account?
Methods of collection that can be used include contacts from the creditor’s internal collections staff or legal department, outside collection agencies, or if the amount is large (generally over $1500–$2000), there is the possibility of a lawsuit.
What to do if you have a Charge-off
Credit Firm has helped thousands of clients delete Charged off accounts from credit reports. If you have a Charge-off or a Profit and Loss Write-off reporting on your credit report, contact Credit Firm to fix your credit and improve your credit score.