What does it mean when a credit card company "charges-off" the debt? The ramifications on credit?

Question

Can they sell your debit to a third party and still hold you responsible to pay?

Answer 1

Yes, its one of the favorite forms of debt collection!

Go to:

www.ftc.gov and click on "consumers" then on the debt collection sections. It is the government's site on debt collection and reporting. You'll get all the info you need there!

A "charge off" is when a debt is so old they do not expect to collect on it. They "charge" it off their expected income during their accounting period. It is when a debt is usually passed onto a collection company.

Answer 2

When a credit card company charges off your debt, it's often sold for pennies on the dollar to a 3rd party. The 3rd party will often be willing to make a settlement, usually no lower than 70% of the credit card balance. The timeframe for chargeoff varies with the company, for example, with Citibank it can be 45 days, while most companies wait longer, (average of 6 months), a few wait longer. You are still responsible to pay, and the record of a charged off account can stay on your credit report for up to 14 years if it's charged off. A "charge off" means the credit card company no longer believes you'll pay, and "sells" the account to a 3rd party collection agency. Many of these agencies are quite aggressive, however they do want to get as much as possible, so a settlement is a good option. If you have anything with equtiy (such as a car, house, etc), you maybe be able get a HELOC (Home Equity Line of Credit), or use your car as equity/collateral for a loan, if you don't owe anything on your car. While it's a bad idea from a financial standpoint, you can sometimes withdraw funds from a 401k, too. You can also pay off a credit card with another credit card via a "balance transfer," sometimes with a lower interest rate. It's always best to handle the account soon as possible, the further past due it goes, the worst it looks on your credit report. Having worked for collection agencies, I can say that they're always willing to work with you, most will offer settlements. I hope this ( long answer ) helps!

Answer 3

A charge off is a very negative mark on your credit report... before I explain the ramifications I will clarify the most important thing about your credit report.

The credit report is the fastest means for lending institutions to determine what the level of RISK is associated with lending money to you. The lower your credit score the more risk of your defaulting or failing to pay with the agreed terms (late payments, partial payments, bankruptcy, etc). Since all financial institutions utilize the various reports it is important that you keep negative items off your report so that they dont convey that you are a risk.

Ok, knowing the purpose of your credit report as a whole we can look at the Charge Off. A charge off is an institution's formal acknowledgement that they NEVER expect you to pay them back. They are stating that they are finished with making any internal collection efforts and will be writing the money that you owe them off (when they file their coporate taxes they will be listing what you owe them as a LOSS to be credited against their profits).

Generally speaking they will then sell your debt to an outside agency (collection agency) to try and reccoup some of the funds you owed. Normally the collection agency will spend pennies on the dollar to buy your debt.

When the debt is charged off you do still owe the debt, but it is now owed to the collection agency. Although this is a bad mark on your credit, it gives you more leverage on being able to settle the debt (pay 30-70% of the total debt and call it settled - with no future collection efforts to take place). Because they bought the debt for far less than the face value - as long as they get more than they bought the debt for they will be amenable to settling.

Charge offs have significantly negative impacts on your credit because they tell other lenders that you didn't pay. here is a good analogy:
You lend your friend Bob $200 because he says he will pay you back.. after 8 months of trying to get him to pay you realize that you are never going to get your money, and simply say it isnt worth the effort anymore. Will you ever lend that friend money again? If you told all your friends (like your credit report does) that Bob doesn't pay people back, do you think that they would lend Bob any money?

This is why it is so important to take care of your debts, even charge offs. After the debt is paid, the charge off will remain on your credit - but having it paid will reflect that you made good on it and that perhaps your financial situation has changed for the better.

There are many agencies that can facilitate settlements, but if you can put in the time and effort you can do it yourself and save yourself the money... also once the debt is settled you can contest the debt on your report (which means they will contact the collection agency for validation). If the collection agency does not respond (which they usually dont after the debt has been paid) after 30 days it is removed from your report.


Hope that helps

Answer 4

It just means they have closed that account on their books, but you are still liable for the debt. This is a very negative rating on your credit report. Credit card companies sell their debt to third parties all the time, this is how collection agencies stay in business. They pay gor you debt and add that on to the debt you owe, and now you are liable for the original debt plus any fees added on.

Answer 5

A charge off is a debt that is considered uncollectible. Usually, those debts are sold since the originating company has written them off their books. When a charge off is reported, the date of 1st delinquency of the debt must also be given to the credit reporting agency to properly calculate the 7 year reporting period according to the FCRA. This way, debts do not remain on your credit report forever.

While a charge off is a black mark, you are not required to pay it. Paying it does not remove it from your credit report. Simply write the collection agency a letter, stating: "Under the FCRA, I do not wish to be contacted about this debt again, in any way, shape or form."

Answer 6

It's a debt that the collector never thought you would pay so they reported the dollar loss on their taxes. Besides bankruptcy, it is one of the worst things to have on your report. Less than 20% of people have every had a charge off recorded on their report. You can still be sued for the debt if the statute of limitations hasn't expired yet. Your best bet is to contact them and arrange a repayment plan if they will take the charge off off of your report. Then stick to the plan. If you don't, you are lengthening your statute of limitations again and will face the same stuff later on.

Answer 7

If it's supposedly "charged off' then why is the credit card co. still calling me 4 times a day?