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4 Things to Expect When Your Credit Card Debt Is Charged Off

Credit Card Basics, Personal Finance
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what to expect when your account is charged off

If you’re far behind on your credit card payments, you might find that your debt is charged off. A chargeoff occurs when an account is seriously delinquent — for credit cards, that’s 180 days of not making the minimum payment, according to IRS law — and the bank writes off the debt as uncollectable. But just because your bank has written off the debt, you aren’t necessarily off the hook. Here are four things to expect if a bank charges off your credit card debt.

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1. You’ll still have to repay your debts …

Considering your account as “uncollectable” is an accounting term, and it doesn’t affect whether you have to pay the debt. Your lender is still entitled to the full amount owed, though it can only collect until the state-mandated statute of limitations expires. Your bank may still decide to pursue the debt in full, and it’s legally entitled to do so.

2. … but you might make your payments to someone else

However, your bank might decide not to do the work of collecting the money itself. Instead, it may hire a collection agency, or even sell your debt for pennies on the dollar. In that case, you’ll have to make your payments to the collection agency, not the bank. Be careful, though: Debt collection scams abound, so make sure that the company you’re writing checks to is legitimate.

3. Your credit score will fall — possibly dramatically

Unfortunately, having your account charged off is going to leave a black mark on your credit report for seven years. That, combined with the records of missed payments that led to the charge-off, will make it difficult to qualify for mortgages, auto loans, new credit cards and so forth. You can, however, soften the blow by paying off your credit card debt in full even after the charge-off. That way, your account will show “charged off and paid in full,” rather than “settled for less than full balance” or even worse, that you haven’t paid back the debt at all. As far as lenders are concerned, it’s better late than never.

4. You won’t be out of options

If you’re unable to make your payments, consider entering a debt management program or seeking credit counseling. A nonprofit advising agency can work with you and your creditors to make a reasonable repayment plan and give you a chance to eliminate your debt. Plus, entering a payment plan doesn’t restart the clock on the seven-year period that charge-offs stay on your credit report unless you open a new account and roll the debt into it.

Finally, if the charge-off was due to a temporary setback, like a layoff or medical emergency, you can try writing a goodwill letter to your lender and asking it to remove the negative information on your credit report. It helps if you can point to a solid history of on-time payments since the charge-off and can give a specific reason for why you fell behind in the first place.

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