A charged off debt means a lender has reported the account as a loss for accounting purposes. The debt is no longer on their receivable listing. It is also considered to be a bad debt. When a debt is charged off, the lender usually takes other actions.
Time Frame
Debts are charged off when you dont make a payment for 180 days. The lender will report the information to the credit reporting agencies as a bad debt or charge-off. This information remains on a credit file for seven years.
Credit Score
Your credit score can be lowered significantly as a result of a charged-off account. This makes it difficult to get credit in the future.
Warning
Lenders will usually forward their charge off accounts to collection agencies, also known as third-party debt collectors, for further collection activity. In some cases the agency will start legal action and get a judgment.
Considerations
When accounts are forwarded to collection agencies, the lender is now out of the picture. You must deal with the collection agency.
Significance
When the statute of limitations has passed for a charged-off account, collection agencies are limited in their collection activity. They cannot win a judgment against you in a court of law. The statute varies from state to state.
Expert Insight
Sometimes a lender will sell the charged-off debt to a collection agency for pennies on the dollar, and other times they will let the collection agency collect on their behalf. In the latter instance they pay the collection agency a percentage of what they collect, such as 25 percent.
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