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What Happens If Your Account is Charged Off?

January 30, 2013

Many people are confused when a credit account is charged off. A charged off account means that the creditor no longer expects payment from you and has written off your account as a bad debt. The creditor has moved your debt into the loss column of its books, which reduces its overall tax liability. Original creditors generally charge off a bad debt after four to six months of non-payment. After that, the creditor will sell your account to a third party, like a collection agency, for pennies on the dollar, and take a tax break. The collector then owns your debt and can collect from you.

A charge off is different than a bankruptcy discharge. A charge off is simply an accounting status. You still owe the money and the legal holder of the debt can collect. The collector can file a lawsuit against you and enforce its collection rights through wage garnishment, bank levy, property lien, or asset seizure. A charged off account stays on your credit report for seven years after the last payment activity, but the debt survives and may only be stopped by the expiration of the controlling state’s statute of limitations (usually found in your contract with the creditor).

Bankruptcy can provide permanent relief. Once you file a bankruptcy case all collection action immediately stops. The status if your account on your credit report changes to “Included in Bankruptcy” with a “Zero Balance” owed. After your bankruptcy discharge you are no longer legally liable to pay the debt. A discharged creditor or collector is not permitted to attempt to collect the debt from you. It may not contact you by telephone; send you statements or collection letters; file a lawsuit; or any other collection action. Any contact or collection act can result in a severe penalty for the collector.

If you can no longer pay your creditors, speak with an experienced bankruptcy attorney and consider a bankruptcy discharge. Bankruptcy can restructure your finances, discharge debts, and stop harassment for good. Could you use a fresh financial start? Get a free bankruptcy consultation today!


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