Your guide to charged off debt

Charged off debt

Charged off debt is the term used when creditors deem your debt uncollectible as a result of insufficient monthly payments. If a creditor charges off debt, it may send the debt to a collection agency who may try to collect, or may sell the debt to a third-party debt-buyer. The time period in which a creditor may charge off debt varies, although it is generally within 6 months of non-payment.

What does charged off debt mean?

A charge-off does not mean that the debt is forgiven. It may still be collected. The charge-off will be noted on your credit report and can harm your credit rating for a long period of time.

Should I pay charged off debt?

If you have the ability to continue to pay your debt without a hardship and you only have a limited amount of debt that has been subject to a charge-off, one option is to reach out to the creditor to see if you can negotiate to repay the debt. Since the charge-off has been reported on your credit report, simply paying it will not remove the negative entry. If you negotiate with the creditor to pay it, request that the creditor remove the charge off in consideration for the payment.

Can I settle debt that has been charged off?

Oftentimes creditors, especially third party debt buyers will offer settlements of the debt. Generally a settlement of the debt will mean that you pay less than the face amount of the debt. Keep in mind, settling a debt may not cause the charge off to be removed from your credit report (especially since it was the original creditor that charged it off). Also keep in mind that settling a debt for less than the amount owed may have a tax consequence to you because the amount saved may be reported by the creditor to the IRS and be subject to income tax.

Debt Collection Practices

Very often charged-off debt is sold to a third-party debt buyer. The debt buyer has the ability to collect on the debt even though it is not the original creditor. Debt collectors have rules that they must comply with when collecting the debt. The Consumer Financial Protection Bureau (CFPB) is a federal agency whose role is to protect against unfair and deceptive acts against consumers and enforce consumer protection laws. Buying charged-off debt is big business. According to the CFPB’s March 2020 annual report, third party debt collection is a $12.7 billion industry in the United States!

Debt Collection through Social Media

Soon you may start receiving messages from debt collectors through texts, instant messaging and your social media accounts (ie. Facebook, Twitter). Since the FDCPA was created in the 70s when social media did not exist, the new CFPB rules are designed to regulate how collectors can reach you through social media platforms and other modern technology. There are options to limit how collectors can reach you through social media and the regulations prohibit a collector from making a public attempt to collect. But you must be proactive and check your social media settings.

The manner in which debtor collectors can attempt to collect debt is governed by a few laws but the main law that governs debtor collectors is the federal Fair Debt Collection Practices Act (FDCPA). This law governs entities that are attempting to collect a debt that is owed to another. While debt collectors are prohibited from engaging in conduct that is abusive, deceptive and unfair and there are collection practices that are prohibited and designed to protect the consumer, the collector may engage in collection of debt through practices such as phone calls, correspondence and lawsuits. Now, the CFPB has issued rules on the collection of debt through your social media accounts. 

Owing debt that you cannot pay or simply have no chance at catching up since it has been charged-off and sent to collections can be very stressful. Collection activity is prohibited once you file for bankruptcy protection (this is called the automatic stay) and prohibited once the Court issues a discharge of the debt (this is referred to as the discharge injunction). Contact a bankruptcy attorney to help guide you through options to resolve your debt and obtain a fresh start.

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