What Does It Mean If a Company Writes a Debt Off?

If you fail to pay a debt, the creditor may write it off at some point in the future. When a company writes off a debt, this does not necessarily mean that you do not owe the debt anymore. This is simply an accounting procedure that companies use and the debt is still intact.

Function

Companies write off or charge off debt when it sits uncollected for an extended period of time. This is simply a procedure that companies use in order to take debts that are unlikely to be collected off of the regular books. At this point, the debt is generally added to a separate book of bad debts. It could also be sold to a debt collector at that point. The debt collector could then try to collect the debt.

Time Frame

The debt has to sit without any payments for an extended period of time before a company writes it off. Each company writes debt off at a different point, but as a general rule, most companies do this once the debt has gone for at least six months without any payment. The company may contact you during the six month period to try to collect and then cease after that.

Credit Impact

When you have a charge off on your record, it can negatively impact your ability to obtain credit in the future. A charge off remains on your credit report for at least seven years. This means that anytime you go to obtain credit, the creditor can see the write off on your report. This will also lower your credit score, which also compounds the problem of getting additional credit.

Repayment

When a debt is written off, you should not mistake this for the debt being forgiven. You still owe the debt and it would be in your best interest to repay it if possible. Even if the company sells the debt to a collection agency, you should still consider repaying it. This would potentially help your credit score and it would show future creditors that you plan on repaying your debts.

Debt Settlement

Debt settlement is a similar term that deals with a company writing off a portion of your debt. With debt settlement, the company may agree to take less than what you owe in return for a lump sum of money. This settles the debt and the company reports it on your credit report. This can also damage your credit score, but it does take care of the account balance.