Credit Card Debt and ‘Charge-Offs’

Posted by Boss Law || 2-Sep-2014

A “charge-off” is the declaration by a creditor, usually a credit card account, that an amount of debt is unlikely to be collected. This occurs when a consumer becomes severely delinquent on a debt. Many people are under the misconception that the charged-off debt means the debt has been cancelled by the creditor. Unfortunately, that is not true and a charge-off is not a positive indication, it reflects poorly on credit scores and can damage your ability to borrow.

Even after being charged-off, the account is delinquent and the borrower is still liable to pay. However, the creditors place it with a different status or department after they realize that the borrowers have not made payments for a considerable period of time and will most likely not contribute any further. Such considerable period of time is generally 180 days or six months of delinquency.

There are two negative consequences of a charge-off. Firstly, after the charge-off, the creditors sell the debt to a collection agency or debt buyer. The debt is sold to the debt buyers for a fraction of amount of the original debt owed. This does not mean that the debt buyers will not collect the original debt amount. They will try to recover the full amount by all lawful means available. They can even institute a debt collection lawsuit for recovery. Secondly, the charge-off is reflected in credit reports and will affect the overall credit score.

The borrower has to confront the debt collector and must respond to their demands for repayment. It is not likely that the debt collector will not take efforts for recovery just because he is not an original lender. He can even employ aggressive methods of collection. The charge-off offers the borrower the right time to negotiate with the collector or the debt buyer. The borrower can seek help from an attorney negotiator to negotiate with the collector and agree over a favorable term of settlement. In such a way, successful reduction of debts can be possible if the opportunity is taken. Otherwise, the debt collector can seek wage garnishment and freezing of accounts for recovering the debt.

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