If an original creditor designates an unpaid account as a charge-off on a consumers credit report, the amount is written off on their internal books. Many creditors sell or assign original debt to collection agencies or junk debt buyers if the account is written off. If original debt is written off, it may still be collected by original creditors or third party collectors.
Charged Off Accounts
An original creditor is the company or person that first issued the credit to the consumer. When no payments have been made during an extended period of time, the original creditor typically classifies the account as a charge-off or write-off. If a creditor writes off an account, it means that they are taking a tax deduction for the loss, but it does not mean that the consumer no longer owes the balance. Original creditors also report written off accounts on a consumers credit report where they may legally remain for up to seven years.
Original Debt
Original debt is the balance of an unpaid credit account initiated with an original creditor. Original creditors often wait for six months before writing off an unpaid debt. During and after the six-month time frame their internal collections department may attempt to collect. Individual state statutes determine the time frame for winning a lawsuit against a debtor for an original debt. The original creditor or a third party collection agency may file a lawsuit against a consumer in an attempt to collect debt that has been written off.
Collection Companies
If the written credit agreement allows for the account to be assigned, the original debt may be sold to debt buyers or passed to commission-based legal firms and agencies for collection. Debt buyers own the account outright; the original creditor no longer has a stake in the collection. If the creditor assigns the original debt to a commission-based agency for collection, the original creditor still owns the debt. The Fair Debt Collection Practices Act regulates the activities of debt buyers and collection agencies, but the laws do not apply to original creditors. Original creditors, collection companies and debt buyers may increase the amount of the original debt through accrued interest and collection fees. Collection companies may also report the accounts on a consumers credit report.
Statute of Limitations
Original creditors, debt buyers and collection agencies may only win a judgment against a consumer for unpaid debt if they file the lawsuit before the states statute of limitations expires. State statutes of limitations are categorized by debt type, such as written agreements, open credit, promissory notes and oral agreements. Each category may have a different time frame for collection. Consumers must present a statute of limitations defense if they are sued by creditors or collection agencies for out-of-statute debt. Otherwise, the court can issue a default judgment against the consumer that may be valid for up to 20 years.
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