What is a debt charge off?
A chargeoff (or charge-off) is the formal declaration by a creditor that an amount of debt is unlikely to be collected. Usually the creditor is a credit card company. The charge-off occurs when a consumer becomes severely delinquent on a debt. Generally, creditors will make this determination at the point of six months without payment. The purpose of making such a declaration helps support a tax deduction for bad debts under the tax code. Bad debts and even fraud are simply part of the cost of doing business. So in short, a charge-off gives the creditor a tax break and that is why they do it.
The charge-off does not free the debtor of having to pay the debt. A charge-off is NOT a write off of debt. At the point of charge-off a few things can happen. If nothing happens, the debt remains internal to the creditor where they will pursue their own collection efforts. However, the debt can also move to a collections company, where a third party company will aggressively attempt to collect the debt for a fee from the original creditor. The debt could also be sold to a debt collector that buys the debt from the original creditor and then can engage in their own collections efforts. Lastly, the debt could be engaged by an attorneys office, either for collection efforts for a fee, or for a lawsuit.
Charged off debt is still legally valid. The creditor has the right to sue for the full amount for the time periods permitted by the statutes of limitation based on the location of the bank and where the consumer resides. Depending on the location, this amount of time may be a certain number of years (for example 3 to 7 years), or in some places, indefinitely. It is important when faced with a charge-off to consult a qualified debt settlement attorney. A qualified debt settlement attorney can provide the expert advice needed to eradicate the debt.
Kevin Fallon McCarthy
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