30 Mar Do I Have to Pay a “Charged Off” Debt
Clients often think that when a debt is “charged off” it means that they don’t owe it. This is not true.
When you fall seriously behind on your payments, usually 6 months worth, the creditor will normally charge off the debt. This simply means that the creditor thinks the debt is uncollectable for tax purposes. This allows the creditor to deduct the debt as a loss on its taxes. It does not mean that you don’t have to pay it. In fact, a charge off is usually just the first step in trying to get you to pay an old debt.
The creditor will report the charge off on your credit report. It shows up as an “R-9,” which is the one of the worst entries on your credit. It can refer the debt to a collection agency, or, more typically these days, sell the account to a debt buyer such as eCast, B-Line, Sherman Acquisitions or NVLV. It can refer the account to a lawyer for suit. What it is least likely to do is to stop collection efforts.
Paying a charged off account will not remove it from your credit report; it will update the R-9 to a “Paid Charge-Off,” which is still a seriously negative item.
So, if you’re looking at your debt, don’t forget to include charged off items.
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