Creditors who charge off credit account balances do not forgive the account holder for the debt. They can attempt to collect the debt amount through the court system in accordance with the laws of the account holders state of residence. Federal garnishment laws CCPA Title III dictate the amount of wages that creditors with legal court orders may garnish.
Charge-off Definition
A charge-off is nothing more than an accounting entry that creditors often make when the balance of a credit account is significantly past due and in default. For most creditors, the time line is 180 days past due before the account is charged off. The charge-off entry transfers the account designation on the creditors internal books from a potential profit to a loss. Creditors can take these losses as tax write-offs. Creditors who designate accounts as a charge-off often report the negative account entry to credit reporting agencies.
Civil Judgments
Creditors who charge off an account balance may still sue the debtor for a civil judgment to pay the past-due amount, plus any accrued interest and incurred legal fees. A judgment is a court order that enables the creditor to collect the amount due on the account by garnishing the account holders wages, seizing their property and levying any bank accounts. Judgment laws differ by state, but creditors who win a judgment from a charge-off or other account can pursue collection for as long as the judgment is valid. For example, if you live in a state that considers judgments valid for 20 years, the creditor can garnish your wages at any time for the life of the judgment. This gives creditors the benefit of waiting to collect until the debtor is in a better financial position.
Garnishment Laws
Garnishment is a legal process of taking an amount of wages or income as payment for a debt. According to the CCPA, a limited portion of a debtors disposable wages is subject to garnishment. Disposable income is the amount of wages left after the required deductions, such as taxes, unemployment contributions and Social Security contributions have been taken from gross wages. The maximum amount of disposable wages that may legally be garnished for a creditors charge-off account is 25 percent or any other amount that exceeds the current federally mandated minimum wage by 30 times.
Garnishment Protections
CCPA Title III protects a debtor from being fired as the result of having one creditors wage garnishment. CCPA does not prevent employers from firing debtors who have more than one wage garnishment imposed. Other types of income, in addition to wages, are protected from garnishment. These include Social Security income, unemployment compensation and certain government pensions.
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