Can a Creditor Collect if It's Written Off?

If you've fallen behind on your debt payments, your creditor will likely "write off" the debt after you have failed to make payments for a period of time. While this may sound as if the creditor may be forgiving your obligation, this is normally not the case. A written-off debt can still have serious financial and possibly even legal implications in the future.

Identification

When a creditor writes off or charges off a debt, it means that it has given up on its immediate efforts to collect the debt. The creditor typically "writes off" the debt by declaring it as a loss when it prepares its annual tax return, which has the effect of lowering its taxable income. A written-off debt will show on your credit report for a period of seven years from the date of an uninterrupted delinquency that is more than 180 days past due, according to the MSN Money website.

Significance

Just because a creditor has written off the debt doesn't mean you are no longer responsible for repaying it. The original creditor, or a third-party collection agency to which your creditor may have sold the debt, can still pursue collection activities and possibly take legal action if the laws of your state permit this. If the creditor or collection agency sues you successfully, you could face garnishment of your future wages or a loss of assets.

Remedy

You can prevent possible legal action and improve your credit report by negotiating to repay the written-off debt with your creditor, or a collection agency if it now owns your debt. In addition to setting up a payment plan, request that the listing of the debt on your credit report appear as "Paid as Agreed" after you've paid it off. This will place your overall credit picture in a more favorable light to potential creditors. You can also request that the listing be removed entirely from your credit report prior to the seven-year time frame.

Considerations

If you are able to successfully negotiate an arrangement to repay your written-off debt, be sure to get the agreement in writing before sending any payments. Keep in mind that if you default on your payment arrangement, the creditor or collection agency could sue you to recover what you still owe, as well as any associated legal fees.