Do I have to pay a charged-off debt?

Some believe that if a bill is charged-off, it is no longer due. That is not the situation, the bill is still owed.   If the creditor is unsuccessful in getting the account paid, it is written-off their books as a loss.  This is usually after the bill is 180 days or more past due.  The creditor has now categorized this account as late stage delinquency, and is often handed over to a third party collection agency for them to collect.  The creditor hopes to get a portion of the money back.

Collection agency

The next step is the collection agency will contact you for payment of the bill.  Now you are dealing with the collection agency, which is usually more aggressive than the creditor. They will call you and send you a verification of the bill.   Per the Fair Debt Collection Practices Act (FDCPA), they aren’t permitted to harass you to get the bill paid.  I have mentioned your rights in this blog in the past. If the collection agency is unable to get timely payment of the account, they could contact an attorney to sue you.

Impact multiplied by three

What impact does all of the above have on your credit? You will have three dings against you on your credit report.  All of these have severe negative impact on your credit and remain on your credit report for seven years.

1. You will have the original information on the bill that was charged-off by the creditor.  You should try to negotiate with the creditor before this happens. For example, if this was a credit card account from ABC Bank, the information on your credit report would have payment history on this account and a current payment status of being charged off.  This account cannot become current again once it is turned over to collections.

2.  A new account is created by the third party collection agency, which is categorized as a collection account on your credit report. You may be able to negotiate with collectors to get it removed, if you pay the bill.

3. If the collection decides to sue you, a judgment is reported in the courts and shows up on your credit report.  If you make arrangements with collector, you may be able to avoid this.

You can see there is a snow ball effect of not paying a bill.  This can have a major impact on your credit and take years to recover.  Try to pay your debts on time and if you can’t, try to make arrangements with your creditor before the situation gets out of hand.

Credit Damage Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

Categorised in: Credit Cards, Credit Report, Credit Score, Debt, Getting Credit, Money & Identity

This post was written by John Ulzheimer