Do I Have to Pay a Charge-off of a Debt?

When you fail to payoff a debt, the creditor involved may charge off the debt. Creditors update company records to list bad debts as charge-offs, and this simply means that the creditor no longer includes the debt as an asset in its accounting records. However, you are still under an obligation to repay a debt, even if the creditor charges it off.

Types Of Accounts

People typically think of charge-offs as involving credit cards and loans, and while many charged off accounts do involve credit products, other charge-offs include deposit accounts. If you overdraw your bank account, you become a debtor of the bank and you must make a deposit to bring your account balance back into the positive. Banks normally charge off deposit accounts that remain in the negative for more than 60 days. On a loan, you are technically in default if you miss your loan payment by more than 30 days. Lenders can charge off an account once you are in default.

Fees

When you fail to pay a debt on time, your creditor can assess late fees. Credit card companies have the ability to raise your interest rate if you fail to make your monthly payments on time, while banks can charge overdraft fees when your balance remains in the negative. In addition to these fees, creditors and banks usually charge an administrative fee for charging off your account. Therefore, the longer you wait to pay the debt; the more it actually costs you to settle it.

Liens

Lenders often work with debt collection agencies to pursue debtors for balances owed on charged off accounts. Some state laws enable debt collection agencies and creditors to have a lien placed on your home. If a judge allows a lender to place a lien on your home, you must satisfy that debt when you sell your home. Any lien holder can foreclose on your home if you fail to repay a debt.

Seven Years

Charged off accounts are reported to the credit bureaus and remain on your credit report for a maximum of seven years. Thereafter, charged off debts are removed from your credit report. If your original creditor sells the bad debt to a collection agency, the debt disappears from your credit report seven years from the day the original creditor charged it off. State laws limit the number of years during which creditors can pursue you for payment of charged off accounts, and in many states, the statute of limitations prevents creditors from pursuing you for unpaid debts even before you reach the seven-year mark.