What is charged off debt and do I have to pay it?
One of the most common misconceptions about debt (or at least the payment of debt) has to do with the term “charge off.” Many consumers have received notifications or explanations that a debt may be charged off if it is not paid. This may lead some to believe that if they do not pay the bill, it will simply drift off into oblivion. Unfortunately, this is simply not the case.
With that, this post will briefly explain the basics behind charge offs, and how they may affect your credit report.
Generally speaking, a charge off is an accounting measure where a delinquent debt is taken off a creditor’s books. Before this action, the debt that you owed was considered (for tax purposes) to be an asset to the creditor. When the creditor determined that you would never be able to repay the debt, the asset was removed from the creditor’s balance sheet.
Unfortunately, your legal obligation to pay the debt is not relieved by this accounting measure. Only a discharge in bankruptcy or full payment of the debt will do this. However, the creditor still retains the right to report the charge off on your credit report. This information, like other financial maladies, can stay on your report for up to seven years.
Nevertheless, there are several things that can be done to improve your credit score even though charge offs may show up on your report:
– Pay existing credit accounts on time
– Use less than 50 percent of available credit
– Paying charged off debt
If you have additional questions about charge offs, an experienced bankruptcy lawyer can advise you.