Credit card companies, banks and other financial institutions that issue credit or loans to consumers adopt different methods for handling delinquent account holders. However, there is one main process that all creditors use once they are unable to collect what is owed.
Facts
Creditors charge off a debt when the account balance goes unpaid for several months. For creditors, the process involves reporting the uncollected debt to the credit bureaus, attempting to collect the balance through a collections agency or their own collections department and reporting the debt as a loss in their financial statements.
Time Frame
There are two time frames that creditors must adhere to when they charge off a debt. A charge-off can only be reported on a consumer's credit reports for a maximum of seven years. There is also a statute of limitations beyond which creditors can no longer sue consumers for the balance owed and this can be between three and 10 years, depending on the original debt agreement and on the consumer's state laws.
Considerations
A charge-off negatively impacts a debtor's credit worthiness and does not absolve responsibility to pay the debt. Debtors may receive several phone calls and letters from creditors or collection companies. Their credit score will also decline even if they enter into an agreement to pay the debt or pay the debt in full.
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