Can a Charged Off Credit Account Be Garnished?

The statistics for 2010 were grim -- more than $75 billion of consumer credit was charged off, affecting 9.35 percent of all credit accounts. The economic conditions of that year led to the highest annual charge-off rate since statistics were tracked beginning in 1989. Despite these losses, banks still want to collect -- and the collectors just might try to garnish debtors to make good on these delinquent accounts.

Write Off

An account write-off occurs when a bank determines that a customer is unwilling or unable to pay on an active loan. Although the bank will attempt collection, at some point determined by the bank's own policies the bank will move the account from active status to write-off status. This move provides the bank with certain tax advantages, including deductions for business losses.

Collections

After an account is written off, the bank itself will cease collection attempts. However, the bank may sell the account to a third-party debt collector. This collector, who may have paid pennies on the dollar to buy the account, will then try to get the customer to pay the full outstanding balance plus additional interest and fees. The customer will either pay the collector in full or in part, or try to evade collections.

Debt Judgments

If the customer and the collector cannot come to terms, the collector can either sell the account to a different collector, let the account expire or take the customer to court. The latter path clears the way to garnishment. When the collector can prove that the debt is valid, the judge will issue an order of judgment that then compels the debtor to pay. This judgment is a necessary prerequisite to obtaining a garnishment.

Garnishment

After the court issues the debt judgment, the debtor must make arrangements to pay the full outstanding amount. If the debtor fails to comply, the creditor can obtain a garnishment order from the judge. This order compels the debtor's employer to withhold a certain amount of each paycheck -- the amount varies by state -- and forward it to the sheriff's office for eventual disbursement to the creditor. Although the collector will be paid off, it's likely that the original charge-off from the bank will remain on the debtor's credit report for a minimum of seven years.