Laws on Interest After a Charge-Off

A credit card charge-off typically only occurs after a person has demonstrated a sustained unwillingness to make payments. Since a charge-off is an accounting notation, the repayment terms in effect before the charge-off are still valid. Both federal and state laws may apply to the interest payments that accrue after a credit card charge-off.

Charge-Off

While charge-off may sound as if your creditor has absolved you of responsibility to pay a debt, in reality the charge-off is just a move to benefit the creditor. By writing off the debt as not collectible by declaring it charged-off, the creditor receives a tax benefit. As a debtor, you are still liable for the full amount of the debt. Interest can continue to accrue on a charged-off debt, as long as no laws exist prohibiting such collection. Examples of laws preventing the collection of interest after a charge-off are each state's statue of limitations laws, which stipulate how long a creditor may continue to charge interest and pursue repayment of a debt.

Interest Laws

The Fair Debt Collection Practices Act governs how debt collectors and other creditors may act towards debtors. The Federal Trade Commission is in charge of the enforcement of the act. Section 808 of the Act prohibits creditors from collecting any debt or interest unless a law or agreement is in effect providing for such collection. Typically, when you open a credit card or take out any other type of loan, you must sign an agreement that includes pages of fine print that outlines the specific terms of the account. Under the law, these types of agreements permit the collection of interest on any unpaid debt, even those charged-off.

Collection Agencies

Collection agencies often handle the administration of a debt after a charge-off. Whether the collection agency is a separate entity altogether or merely an affiliated company of the original creditor, you are still bound by the terms of the original agreement. If your credit agreement stipulates that interest can continue to accrue indefinitely, the Fair Credit Collection Practices Act, which is the governing law in this situation, stipulates that you will still owe the collection agency additional interest after the original charge-off. Collection agencies may be entitled to add additional collection fees as well.

Resolution

Generally, interest will continue to accrue on a charged-off debt until some type of final resolution is in place. If you can avoid creditor wage garnishment or account levies until your state's statue of limitations expires, you will then no longer owe either the debt or the accrued interest. A bankruptcy discharge is another way you can stop all interest charges and repayment obligations. Paying off the full amount owed is the most direct way to eliminate the debt and interest.