What is a Charged-Off Debt?

Struggling with debt is incredibly difficult under any circumstances, but it has been particularly difficult for many individuals and families in Illinois during the coronavirus pandemic. You may be dealing with frequent calls from debt collectors, and you might be considering Chapter 7 bankruptcy or Chapter 13 bankruptcy as an option. At some point, you might learn that the creditor has charged-off your debt, and you might assume that you are no longer responsible for paying the debt. Whether or not you are considering personal bankruptcy, we want to make sure you understand what charged-off debt is and how it can affect you.

What Does it Mean if My Debt Has Been Charged Off?

If you learn that a particular debt has been charged off, you should know first and most importantly that this fact does not mean that you no longer owe the debt. In fact, many charged off debts are sold to debt collection companies and other debt buyers, and you will likely continue to receive calls about the debt you owe. So, what is charged-off debt?

In short, as an article in Market Watch explains, if you do not pay on a debt you owe—either if you do not make payments on a larger debt or if you fail to pay off a debt—and the debt becomes delinquent by several months or longer, the creditor may charge off the debt. According to Market Watch, you can think of this as a situation in which “the company has given up hope that you’ll pay back the money you borrowed and considers the debt a loss on their profit-and-loss statement.” But that is not the end of the line for the debt you owe. At this point, the creditor will then close the account on which you owe the debt (which can be anything from a credit card to a personal loan), and the creditor will write off, or charge off, the debt. Then, the creditor will either send your debt to a collection agency or will sell the debt to a debt buyer. Accordingly, you will likely begin to receive calls from collection agencies or debt buyers.

Receiving Calls From Collection Agencies or Debt Buyers Likely Means Your Debt Has Already Been Charged Off

To be clear, once you start receiving calls from collection agencies or debt collection companies, your debt most likely has already been charged off by the creditor. What this means is that the creditor is not anticipating that you will repay the debt, but you still owe the debt under the law. A charge off applies only to the creditor’s own accounting—it is not a term that has anything to do with whether you owe the debt. As such, the collection agency or debt buyer will continue to make attempts to collect the debt, and the creditor still has a right to attempt to collect the debt.

Creditors Can Take Action on Charged-Off Debt

You should not think that charged-off debt means that the creditor will not attempt to collect—the opposite is usually true. Once a creditor has charged off a debt, it can take a variety of legal actions against you to attempt to collect, including filing a lawsuit against you or attempting to have your wages garnished.

Most types of charged-off debt do have a statute of limitations, which means you will only owe the debt for a specific amount of time (usually five years or 10 years, depending upon the type of debt). In addition, many charged-off debts can be discharged in bankruptcy, preventing the creditor from taking any further action against you.

Contact an Oak Park Bankruptcy Lawyer

If you have questions about managing charged-off debt or if you want to learn more about the benefits of consumer bankruptcy, you should seek advice from one of our Oak Park bankruptcy attorneys today. Contact the Emerson Law Firm to learn more about how we can help you.



See Related Blog Posts:

Top Changes That Could Come to Consumer Bankruptcy in 2021

Filing Consumer Bankruptcy for Personal Guarantees

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