What Is a Charge Off?
When a debt collector has given up on collecting payments from a debtor, the debtor’s account can be marked as a charge-off. You can get a charge off in your account if you have missed payment or have not been paying the full minimum amount of your debt for a significant amount, or you have become delinquent on your debt. Delinquent payments cause the debt to be categorized as a “charge off” on the profit and loss statements of the original creditor or company. Credit card companies have a maximum of 180 days before declaring an individual as charged off as bad debt. By law, banks are required to mark individuals in a charge-off when it reaches a certain level of delinquency. This still depends on the type of debt they have acquired. When it comes to personal loans, individuals have a maximum of 120 days before obtaining a charge off in their account. Certain situations like the decease of debt holder or filing for bankruptcy can also lead to being marked as a charge off.
Do I Still Have to Pay My Debt Collector?
An account charged off as bad debt does not mean that you are no longer required to pay off your debt. A charge-off status remains on your credit report for seven years starting from the date your first missed payment was filed. After the said period of time, this will be removed from your credit report under the Fair Credit Reporting Act. If you choose not to pay or unable to pay the debt, you may have to wait for that long so that the charge-off can no longer affect you. If the original creditor has not yet sold the account to the collections agency, he/she still has the power to continue attempting to get debt collection from you. Worse, your creditor can sue you for what you owe. Individuals who have a charged off account can even be denied future credit card and loan applications. It is still advisable to repay the debt as soon as possible so that the charge-off can be removed from your credit report without waiting for seven years.
How Bad Can a Charge Off Affect Your Credit?
Charge-offs bring grave and damaging effect to an individual’s credit rating and credit score. As we all know, a charged off account remains in the credit report of the debtor for seven years, unless it was paid soon enough. Accounts with a charge off are also reported to the major credit rating bureaus in the country. Individuals with a charge off account are a red flag for lenders. Having this status suggests that an individual is not responsible when it comes to their financial obligations. As a result, a person who has a charged off account can have difficulties in filing for new credit, mortgages, auto loans and other types of financial assistance in the future.
Making Things Right
Having a charged off account is not the end of the world for a person. It’s not also a way out to your debt. Once you owe something to someone, it still is your responsibility to pay them back. Until the debt is fully paid, settled or discharged in a bankruptcy filing, you will still need to look for ways to fix this. Here are some ways how to remove that charge off status of your account:
- Verify your charged off account
Make sure that the information in your account is accurate. One of the things you may want to check is the outstanding balance of your account. If you believe there are additional costs or miscalculations, you can ask for an explanation from the debt collector. Disputes can be made, and the credit bureau offers a maximum of 30 days for the debt collector to verify the debt. You should also check the date of the charge-off if it’s correct. Moreover, if your account has been sold through third-party collection agencies, ensure that the account has zero balance and is marked “closed”.
- Talk to your debt collector
You have an option to negotiate with the original creditor to remove a charge off in exchange for payment. But before jumping into this option, you should first have an idea about the amount you should pay for. If you can pay the complete amount right away, then there’s a big chance that you’ll be able to convince your debt collector. You can also send this message to the debt collector via a “Pay for Delete Letter”. Of course, you have to get the name and direct address of the debt collector or the collections agency rather than a general correspondence. If the creditor won’t agree to the negotiation, you may request for a less negative, like having a “Closed” account.
- Goodwill adjustment
Whether you have missed paying your debt due to a medical emergency or because you lost your job, you can write a goodwill adjustment letter citing a personal hardship to eradicate a charge off. This can also be your option if the reason why you weren’t able to pay is that of an honest mistake. The credit bureaus may even consider this appeal if you negotiate a payment.
- Ask for help
The best option to remove the debt is to seek help regarding your finances. You can either seek credit counseling or join a debt management program. You can also work with a nonprofit advising agency for you to have a reasonable repayment plan with your creditors.
Like any other debt, the best course of action to take on a charged off account is to fully pay the debt. Paying the debt completely will have an impact on your credit report, showing that you are exerting all effort to resolve the negative status of your account. Your credit report should show a “paid charge-off” status once everything was paid for. If you do not have the means to pay the debt in full, the suggestion is for you to create a budget plan. This may take a little longer but at least this slowly removes the debt off from you. Better if you can pay the debt on time as it will improve your credit report status.
To sum it all up, a debt collector can list your account as charged off as bad debt if you have missed too many payments and your account goes unpaid for a certain amount of time. However, this does not mean that you are no longer required to pay the said debt. The original creditor can still attempt to collect payment from you. If the original creditor has sold your account to a collections agency, you are responsible to pay to them now. After finding out that you have a charged off account, you can first verify if it’s correctly listed. Then, you can decide how to pay the debt collector or collections agency back. Whether you are able to pay the debt in full or partial, if everything goes as planned, the charge-off will be removed from your credit, eliminating the need to wait for seven years.