Can Creditors Sue After a Charge-Off?

Creditors charge off their customers' delinquent credit card debts to balance their company's books and claim the unpaid debt as a tax deduction. A charge-off occurs when a creditor determines a debt is uncollectible and writes it off after many unsuccessful attempts to recoup the debt over several months. An original creditor can sue to collect such debts, but it's more likely that a lawsuit regarding a charged-off debt would come from a collection agency.

Collection Agencies

Credit card holders are responsible for paying charged off debts, and creditors usually sell such debts to collection agencies that continue attempts to get cardholders to pay them. Collection agencies have the right to sue to collect delinquent debts they buy from creditors if they cant work out a payment agreement with account holders. However, there are limits on how long creditors and debt collectors can use lawsuits to recoup unpaid credit card debts.

Statute of Limitations

States set their own statute of limitations on debt collection, which dictates the amount of time companies have to sue to collect various types of debts. The statute of limitations on credit card debt ranges from as short as three years in Arizona to as long as 10 years in Rhode Island. The Bankrate website lists each state's statute on its website. It's a violation of the U.S. Fair Debt Collection Practices Act for a company to sue you to collect a debt after the statute of limitations expires. However, the act only prevents a lawsuit after the statute expires; it doesn't stop a debt collector from continuing to try to recoup what you owe on a delinquent debt.

Payment Agreements

Any payments you make or agreements you sign in relation to a charged-off debt obligate you to settling that debt, even if it's already several years old. Payments and agreements also give collectors more evidence to sue you to recoup what you owe. Therefore, it's important to avoid making payment arrangements you can't afford to pay in an attempt to avoid a lawsuit. Add up your other debts and be realistic about what you can afford to pay in one lump sum or in several payments to settle a delinquent debt.

Considerations

Paying a charged-off debt can help you avoid a lawsuit and get collectors off your back, but it likely won't change the damage done to your credit rating. Negative information about late payments and collection accounts remains on your credit report for seven years, even if you pay off the associated debts. Some collectors may tell you they can withdraw the negative information they've reported to credit bureaus if you pay off your debt with them. However, that likely wont help your credit rating, because they have no authority to remove the damaging information the original creditor reported to the bureaus.

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