What is a Charge-Off Debt?

Credit reports contain a variety of entries littered with legal and financial jargon. It can be difficult to know what each entry actually means, and what effect each entry has on your credit score. Many debtors who are struggling with payments discover that one of their debts has been converted into a “charge-off debt,” but the effect of that designation is not always clear. Read on to learn about charge-off debts, and call a knowledgeable Ventura debt relief and bankruptcy attorney for help with mounting consumer debt.

Charge-Off Debts

A charge-off is an entry on your credit report concerning an outstanding, delinquent debt. Charge-off indicates that the creditor, after trying and failing to collect on the debt, has given up on getting payments and making the account current. The creditor has determined that the debt is a loss for the company and has closed the account, designating the account as a charge-off. A charge-off can occur with credit card debts, personal loans, student loans, or other types of debt. While at first blush that may seem like a boon–the creditor has stopped trying to collect, so doesn’t that mean that no more payments are due?–a charge-off should not be considered a windfall.

A charge-off is considered a derogatory entry on your credit report. It can severely affect your credit score and impact your ability to get a loan, a credit card, or any number of other things that are based on your credit report. A charge-off may be visible on your credit report for as long as seven years after your first missed payment. Some creditors may be unwilling to lend, believing that the charge-off indicates the debtor is unwilling or unable to repay. Moreover, you are still legally responsible for repaying the debt–a charge-off is not the same as having debt forgiven.

How to Pay Off a Charge-Off Debt

So long as your account entry is listed as a charge-off and continues to display a balance, you can contact the creditor and make payment. Paying off a charge-off debt will cause the entry to change from “charge-off” to “paid charge-off.” The paid charge-off entry will, unfortunately, remain on your credit report, but creditors tend to view paid charge-offs much more favorably than unpaid charge-offs.

If the creditor sells your debt to a collections agency, the balance on your charge-off account will change to “zero.” A new entry will appear on your report under the heading “collections.” The collections agency may start pursuing efforts to collect the debt, and you are still legally obligated to pay. At that point, you cannot remove the charge-off debt entry until the seven-year mark. The only way to remove the charge-off earlier is to prove that the entry is inaccurate. There are many circumstances under which a charge-off entry will, indeed, be inaccurate, and debtors have the right to challenge any inaccuracy in their credit report.

Paying off a charge-off may not actually help your credit score that much. It will remain listed as a “paid charge-off” for some time. Working to improve your credit score in other ways, such as by keeping payments current with all other accounts, may help your credit more in the long run. Talk to a debt relief attorney to find out your best options for improving your credit and getting out from under heavy consumer debt.

Find Your Financial Foothold With Help From a Dedicated Southern California Debt Relief Attorney

If you are dealing with mounting debt and considering debt relief options including bankruptcy, please contact Rounds & Sutter for a free, confidential consultation. With offices in Ventura, Santa Barbara and Westlake Village, we represent clients throughout Southern California, offering tried & true legal counsel in the face of life’s challenges.