Credit card companies write off consumer accounts that it deems uncollectable. This prevents the company from wasting further resources attempting to collect the debt. Once a credit card company charges off your account, it will appear on your credit report for seven years.
Facts
Credit card companies write off unpaid debts by purging the records of each bad debt from its accounting ledger. Once a company writes off a debt, the debt no longer appears as an active account within its computer system, but you still owe the debt.
Time Frame
According to MSN Moneys Liz Pulliam Weston, most credit card companies wait to write off an overdue account until the debt goes unpaid for six months or longer.
Considerations
After writing off bad debts, credit card companies often sell the debts to a collection agency for less than the amount owed on the account. This allows the company to recover a portion of its losses.
Considerations
Once a credit card company writes off an overdue consumer account, it can claim the amount the individual owed as a tax loss. If the company sold a debt, it must deduct the purchase price of the account from the total debt when determining its deduction.
Effects
If a written off account exceeds $600, the credit card company must issue you a copy of Form 1099. You must then claim the amount of the credit card companys deduction as income on your taxes.
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