{"id":4263,"date":"2022-02-28T08:00:00","date_gmt":"2022-02-28T14:00:00","guid":{"rendered":"https:\/\/www.accrediteddebtrelief.com\/blog\/?p=4263"},"modified":"2024-02-06T09:51:42","modified_gmt":"2024-02-06T15:51:42","slug":"a-borrowers-guide-to-charge-offs","status":"publish","type":"post","link":"https:\/\/www.accrediteddebtrelief.com\/blog\/a-borrowers-guide-to-charge-offs\/","title":{"rendered":"A Borrower\u2019s Guide to Charge-Offs"},"content":{"rendered":"\n

If you stop making payments on one of your debts altogether, what happens? In the beginning, the consequences are typically in the form of stern letters and late fees. However, when you fall severely behind, your creditors may eventually stop trying to collect and charge off your debt instead.<\/p>\n\n\n\n

What do charged-off debts mean for you and your creditors? Is the debt gone, or are you still on the hook? In this blog, we\u2019ll explain what happens when debt is charged-off and what to do if you have a charge-off in your credit history.<\/p>\n\n\n\n

What Exactly Is a Charge-Off?<\/h2>\n\n\n\n

A charge-off is a negative entry on your credit report showing that a creditor closed an account and gave up on trying to collect payments. When this happens, your creditors will report the charge-off to credit bureaus. They may also pass your debt off to a collection agency or a debt buyer.<\/p>\n\n\n\n

When Can a Charge-Off Occur?<\/h2>\n\n\n\n

If you\u2019re late for the very first time on a payment, don\u2019t panic! Creditors only resort to charging off debts when they become severely delinquent. <\/p>\n\n\n\n

When you initially fall behind on payments, your creditor will first try to contact you and remind you that you\u2019re past due. However, if you haven\u2019t paid for 90 to 180 days, they can change tactics and charge off your account.<\/p>\n\n\n\n

What Do Charge-Offs Mean for Creditors?<\/h2>\n\n\n\n

When a creditor charges off a particular debt, they take it off of their balance sheets and write the account off as a loss. This allows them to list the debt as a \u201cbad debt\u201d and an expense in their profit-and-loss statement. <\/p>\n\n\n\n

Companies still have the right to pursue collection even after they\u2019ve charged off a debt. They may choose to sell or transfer charged-off debts to a collection agency or a debt buyer, allowing them to recoup a fraction of their loss.<\/p>\n\n\n\n

What Do Charge-Offs Mean for Borrowers?<\/h2>\n\n\n\n

If your creditor charges off one of your debts, does that mean you\u2019re in the clear? Unfortunately, no \u2014 you are still responsible for paying back the money you owe until the statute of limitations<\/a> has been reached. Your creditor could also sue you in an attempt to collect the money.<\/p>\n\n\n\n

Additionally, charge-offs are listed as derogatory marks on credit reports, meaning they can negatively impact your credit score. Similar to bankruptcy, a charge-off and the balance you owe can remain on your credit report for seven years, making it difficult to apply for new lines of credit.<\/p>\n\n\n\n

Another important thing to remember is that charge-offs don\u2019t stand alone \u2014 multiple months of nonpayment can hurt your payment history, which accounts for more than a third of your credit score. That, in addition to the ding of a derogatory mark, can mean serious trouble for your creditworthiness.<\/p>\n\n\n\n

Charge-Off vs. Collections<\/h2>\n\n\n\n

When a debt is only charged off, your original creditor is still entitled to what you owe, and a\u00a0derogatory mark is listed on your credit report.\u00a0<\/p>\n\n\n\n

However, if your creditor chooses to send your debt to collections, you\u2019ll need to work with a collection agency or debt buyer to pay off your debt rather than the original creditor. A new derogatory mark \u2014 \u201ccollections\u201d \u2014 will appear on your credit report. The charge-off balance gets changed to zero, and the amount you owe gets listed under the collections mark. <\/p>\n\n\n\n

What Should I Do If I Have A Charged Off Account?<\/h2>\n\n\n\n

If you receive a charge-off – consider the following options to address it:<\/p>\n\n\n\n