Probably not. During initial consultations, I usually ask clients to tell me about what debts they owe so we can create a plan to deal with them efficiently. Many clients tell me about some of their debts, and then explain that the rest of their debts have been “charged-off.” A “charge-off” usually means the original creditor has sold an account to a debt collector. It does not end a consumer’s obligation to pay the debt. As an Asheville bankruptcy attorney, I’ve seen the frustration this causes people firsthand.
What do creditors mean when they say a debt has been charged-off?
Creditors are required to classify a debt as charged-off if no payments have been received for over 180 days. The federal government requires this of corporate creditors for accounting purposes so that those companies can be valued properly when bought and sold at stock exchanges and in corporate mergers.
The Growth of Debt Buyers
Debt buyers purchase charged-off debts from creditors for pennies on the dollar. After the mortgage crisis, the industry grew exponentially when people suddenly lost their home equity and many lost their jobs. In today’s environment, most corporate creditors have agreements in place which automatically sell the charged-off accounts to these type of debt buyers/collectors immediately once an account becomes 180 days overdue. Even though the debt collector has paid a mere fraction of the original debt to the original creditor, a consumer is still liable for the entire amount of the debt under their agreement made with the original creditor.
Effect on Credit Scores
A failure to pay a debt under the original terms of the financing agreement will usually result in negative notations on a person’s credit. Unfortunately, a charged-off notation is a negative that generally continues to haunt a consumer even after a debt collector purchases the account from the original creditor. Many consumers call on me for help because they don’t understand why their credit scores are not improving. “Charge-offs” are commonly the culprit.
Bankruptcy for Charged-Off Debts
Bankruptcy is a financial tool which can permanently end your obligation to pay the original creditor or debt buyers on a charged-off debt. While bankruptcy is also a negative on your credit report, many times it can be a positive first step for a consumer to reestablish good credit because the charged off debts can be discharged by the bankruptcy court along with other debts. A Chapter 7 case is the most basic kind of bankruptcy, is referred to as a financial “fresh start,” and has been designed to give people just that opportunity.
If you would like to know your legal options, and live in Western North Carolina, I would be pleased to speak with you during a free, initial bankruptcy consultation.
Photocredit: Skippy Haha Vintage