If ignored, credit card and medical debt result in a charge-off. Charge-offs have serious consequences for your credit score. In addition, the IRS will require you to pay taxes on the charged-off amount.
The Facts
Charge-offs are the result of nonpayment. The higher your credit score is prior to the charge-off, the more points you will lose after the charge-off occurs.
Time Frame
Charge-offs typically occur after 180 days pass without a payment's being made. A charge-off will remain on your credit report for seven years.
Function
A debt must be charged off by the creditor so that the creditor is able to claim the debt as a tax loss.
Prevention
A charge-off can be avoided by working out a payment plan or settlement with your creditor.
Effects
Charged-off debts are often sold to collection agencies, which report their ownership of the debt to credit bureaus, further damaging your credit score.
Warning
A collection agency may sue you to recover the balance of a charged-off debt.
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