Do I Have to Pay a “Charged Off” Debt

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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Brett Weiss, a senior partner at The Weiss Law Group, LLC, represents people and businesses in all phases of bankruptcy. He has experience in complex individual Chapter 7, Chapter 11, and Chapter 13 bankruptcy cases, and in Chapter 11 small business restructuring and reorganization. Mr. Weiss lectures nationally on bankruptcy issues. He has testified before the Federal Bankruptcy Rules Committee, the Consumer Financial Protection Bureau, and has twice testified before Congress on bankruptcy and credit issues. Brett Weiss is the co-author of Chapter 11 for Individual Debtors, and has written Not Dead Yet: Bankruptcy After BAPCPA, for the Maryland Bar Journal, as well as hundreds of blogs for the Bankruptcy Law Network. With his colleague, Daniel Press, he recorded a 13-hour basic bankruptcy training series, and leads intensive three-day Chapter 11 training boot camps. Mr. Weiss has received international media attention in connection with his work. He was interviewed by Barbara Walters on The View, has appeared on the Today Show, Good Morning America, ABC News with Peter Jennings, the Montel Williams Show, National Public Radio, AARP-TV, the BBC World Service, German state television, and numerous local radio and television programs, and been quoted in Money magazine, The Washington Post and The Baltimore Sun, among others. Brett Weiss is the previous Maryland State Chair for the National Association of Consumer Bankruptcy Attorneys, a founding member of the Bankruptcy Law Network, on the board of the Maryland State Bar Consumer Bankruptcy Council, and a member of the American Bankruptcy Institute and the Bankruptcy Bar Association of Maryland. He has received the Distinguished Service Award from the National Association of Consumer Bankruptcy Attorneys for his work on behalf of consumers across the country. Mr. Weiss is admitted to practice before Maryland and District of Columbia federal and state courts, the United States Courts of Appeals for the DC, Fourth and Eighth Circuits, the United States Tax Court, and the Supreme Court of the United States, and has been practicing law since 1983.
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