When you cannot afford to pay a debt, creditors have several options that they can pursue to try to get the money you owe. In some cases, however, the creditor will simply write it off as a bad debt. This is known as a charge off and it can negatively affect your credit.
Charging Off a Debt
When a company charges off a debt, it is essentially using an accounting procedure so that the company can report a loss on the debt. This does not mean that the debt is necessarily forgiven or forgotten about. In many cases, the company will still try to collect the debt after it has been charged off. You still owe the money and paying off the debt after a charge off can still help your chances of getting credit in the future.
Staying on Your Report
When you do not pay a bill and the creditor charges it off to bad debt, this will show up on your credit report. In fact, the negative item can stay on your credit report for quite some time. By law, the account can stay on your credit report for as long as seven years. Even if you decide to pay off the account after it has been charged off, it will remain on your credit report for the full seven years.
Collection Actions
After your account is charged off by the creditor, you may face some collection actions. The creditor can try to collect the debt directly or it can work with a collections agency to try to collect the money you owe. You may start to receive phone calls and letters telling you to repay the debt. In some cases, the creditor will try to file a lawsuit against you to get a judgment. This could lead to wage garnishment, levied bank accounts or liens placed on your property.
Paying the Debt
When you have a charge off, it is in your best interest to pay it off. Even though it will still be on your credit report, it looks much better to have paid off a charged off account than it does to have one that is still outstanding. You can try to contact the creditor directly or contact the collections agency that is handling your account. If the debt is very old and the statute of limitations has run out on the debt, you may not have to pay it.
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