A charged-off account is a credit card or other loan that the lender considers a business loss. After several months of trying to collect even minimum payments from you, the lender gives up, closes your account and lists it on your credit reports as R9 -- for revolving credit charge-off or I9 for installment credit charge-off.
Collection Efforts
You remain liable for the debt even after it has been charged-off. The original creditor may try to collect from you by having its in-house collections team contact you by mail or telephone. Or the creditor may sell the account to a debt collection agency, often for pennies on the dollar. The debt collector can then come after you for the full balance.
Timeline To Charge-Off
There isn't a hard and fast rule regarding when creditors will close your account and list it as charged-off. However, generally, accounts are charged-off after you fall six months behind. There is usually no way to reverse the action, although the creditor could agree to remove the negative mark from your credit reports in exchange for you paying the balance in full. If you pay the charge-off without such an agreement your credit reports will be updated with the notation "paid charge-off."
Statute of Limitations
The debt will not expire on its own, and you could be subjected to collection efforts for a lifetime. However, there are state statute of limitations regarding how long debt collectors have to sue you in court. The length of time varies by the state, but the statute of limitations in most states is six years. The potential for legal action is the debt collector's greatest weapon. A lawsuit could lead to a civil judgment for the full balance plus legal fees, and your wages could be garnished. The debt collector loses that advantage once the statute of limitations expires. The debt collector could still file suit against you, but the case will be dismissed if you show up for the hearing and tell the judge that the statute of limitations on the debt has expired. After that the debt collector could continue trying to collect from you by telephone or mail.
Credit Score
The negative entry on your credit reports will hurt your credit score, although the impact will lessen as the debt ages. It can remain on your reports for up to seven years. Some people with charge-offs that are beyond their state's statute of limitations simply wait for the negative entry to fall off their reports.
Resolution
You can resolve the issue by simply paying the debt -- perhaps for less than the full balance. According to The New York Times, some debt collectors will accept as little as 20 percent of the balance to settle collection accounts, but generally settlements are for about half the balance. It's also important to note that the statute of limitations restarts if you make a partial payment on the debt or if you have a conversation with the debt collector in which you acknowledge that the debt is yours. For example, say the statute of limitations in your state is six years, and for whatever reason you accept the debt collector's offer to make say, a $20 payment on the account. That resets the clock, giving the debt collector another six years to pursue you in court.
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