By Robert J. Semrad | Published November 04 2013 |
Charged Off Debt: What It Really Means and How Bankruptcy Can Help
What do you think of when you hear that a debt has been charged off? If you’re like most folks, you may think it means the debt is gone for good. And it is gone – just not from you.
Charged-off debt is really just a tricky accounting term. When debts or assets are “charged off,” it simply means they’ve been removed from a balance sheet.
Let’s say you haven’t paid your credit card debt in six months. At some point, the creditor can no longer carry it on their books as a current asset. Therefore, their accountant takes it off the books; in other words, they charge it off.
While the debt may no longer be your creditor’s problem, it’s most certainly still your problem. Often times, creditors will get rid of bad debts by selling or transferring them to a collection agency or debt buyer. That’s when the harassment starts.
Besides setting you up for a barrage of phone calls and letters from determined debt collectors, unpaid charge-offs will deeply damage your credit score. The only thing worse than being late on your debts is not paying them at all, and lenders and prospective landlords and employers who see a charged-off debt won’t give you the time of day.
Once a debt has been charged off, it will remain on your credit report for seven years. That’s a long time to suffer the consequences of delinquent debt. Though states have various statutes of limitations for collecting on unpaid accounts, most will allow creditors to sue in court for up to three to six years.
Having your debt charged off isn’t an excuse to ignore it. If anything, it’s a wake-up call that you need to do something about your debt situation.
Should you decide to file for bankruptcy, it’s important to include any charged-off debts. A Chapter 7 bankruptcy plan can eliminate unsecured debts like credit card debt completely. Additionally, the automatic stay that goes into effect when you file prevents creditors or debt collectors from contacting you directly.
When you file for bankruptcy, you no longer owe money after your debts are discharged. But when you live with a charge-off, you’re taking a gamble that whoever is currently holding your debt won’t come after you – and the odds aren’t in your favor.
Bankruptcy is the only solution guaranteed to lower or eliminate debt – and usually the trouble that goes along with it. The sooner you face your financial struggles, the sooner you can overcome them. Bankruptcy can help.
Contact DebtStoppers today to speak with our experienced bankruptcy attorneys about your options for finding financial freedom.