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You have done all you can to keep up on your credit card payments, but you have still fallen behind. Now you’ve received a letter saying please pay $XXX.XX in the next 30 days or your account will be charged off. First, you are trying to figure out how the amount due equals 4-5 times more than your regular monthly minimum payment, but nevertheless, you realize you cannot pay it. Your account inevitably gets charged off and you can no longer use it. 

Now what? 

This article will go into detail on the following:

  1. What is a charge off?
  2. Can debt collectors collect on them?
  3. How to protect yourself from illegal or fraudulent collection activity
  4. Solutions to Resolving the Debt

What is a charge off?

Charge-offs are accounts that get closed by the financial institution for lack of payment, they may be reflected as ‘bad debt’ on your credit report – which essentially means that the lender was unable to receive payment and wrote the debt off.  A charge-off occurs when a credit account (like a credit card or personal/signature loan) goes without payment for more than 120 days. The account essentially goes into a ‘closed’ status, but the remarks will say ‘charged off as bad debt’ or something similar. Charge offs usually stay on your credit report for 7 years. 

Can Debt Collectors Collect on a Charge Off?

You are probably wondering whether or not a charged-off account can be sold to an outside collection agency or if you are still responsible for paying that account. In short, yes you are still obligated to pay that debt. But it depends on how old the charged-off account is. Before agreeing to pay it, you should check with your state attorney general’s office to inquire about the statute of limitations. If the statute of limitations is not up, it may be in your best interest to pay off the debt or settle it for less

You are getting lots of calls and letters from a collection agency and are unsure if the debt is even yours. What should you do?

All of the correspondence that you have been receiving regarding a charge off account seems legitimate, but you are unsure about the balance, creditor/collection agency name, or maybe you do not even recognize it at all. What are you supposed to do? 

First off, do not pay anything until you do your own research. Debt collectors are required by the Federal Trade Commission to validate any and all debt. They need to be able to prove that the debt is yours. You can send them a debt validation letter, a debt validation letter is essentially you requesting them to prove that the debt is yours. Some collection agencies may be able to prove it, others may not. It is still a good idea to send one regardless. The Consumer Finacial Protection Bureau has sample letters that you can download and customize to your situation. 

Can a Debt Collector Sue me for a charge off?

Yes, a debt collector can often sue you for a charged off account.

Your account has been charged off for about a year now. One day you get a certified letter in the mail and you find out that either the original creditor or a collection agency is suing you for the balance owed plus any interest and fees that may be associated with the account. You are thinking to yourself, are they even allowed to sue me over a charge off? The answer is yes. Typically speaking the only time a lender or collection agency cannot sue you over debt is if the original creditor is not licensed to loan or collect money, such as a tribal payday loan lender.

Solutions to Resolving the Debt

You may be at a point where you’re ready to get out from under the debt and are looking for some ways to do so. Holistically comparing between the options can be one of the best things to start with. 

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is also known as liquidation bankruptcy.  Most unsecured debts are usually discharged within 90-120 days. You must meet certain income and asset requirements to qualify for this type of bankruptcy. Not sure if you would qualify for chapter 7 bankruptcy? Take our quiz to find out. 

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is when you do not qualify for chapter 7 bankruptcy, your debts are restructured and entered into a repayment plan. For 2-5 years you will make monthly payments to the bankruptcy trustee for a set amount until you fulfill the agreed amount. You can estimate your chapter 13 bankruptcy payments here

Debt Settlement

Debt settlement is when you negotiate your debts with your creditors to pay less than you owe. Usually, you pay 40-50% of what you owe. You typically will work with a debt settlement company or your attorney to get an agreement in writing. If you choose to work with a debt settlement company you will make monthly payments to them for 12-48 months. If you are curious about what your monthly payment for debt settlement would look like you can check that out here

Conclusion

When dealing with a debt collector regarding a charge-off, remember to always make notes of any and all communication with them. You can use this 11 word phrase to stop them. Communication can protect you from any illegal or fraudulent activity that they may be taking part in, in order to recoup some or all of the original balance. When a debt collector calls you, take notes of the agent’s name, phone number, account balance, date, and time they contacted you.

Making notes of the conversation will be helpful in the event that the collection agency decides to sue you for the debt. You can use your notes as evidence against the collection agency and use that to prove that they violated the Fair Debt Collection Practices Act (FDCPA). In the event that you can prove that the debt collector violated the FDCPA you may file a counterclaim and the judge may award you financial compensation, or dismiss the suit making you no longer liable for the debt. 

Post Author: Ascend

Group of guest writers and industry experts who have specific expertise in Chapter 13 bankruptcy, Chapter 7 bankruptcy, debt relief, debt settlement, and debt payoff.

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