Charge-Offs
What is a charge-off?
A charge-off occurs when a credit account becomes delinquent to
a point where the account balance can no longer be considered as
an "asset". A charge-off may also be identified as a Profit and
Loss write-off.
When does a charge-off occur?
Typically, a charge-off occurs when an account becomes six months,
or 180 days, delinquent, but the time frame can vary.
If I am making payments lower than the creditor's
monthly minimum payment due, will this prevent a charge-off?
This depends on whether or not the creditor has agreed to lower
the expected monthly minimum on the account. If the creditor has
agreed to lower the expected monthly payment, the account may not
continue to "age" to the point of charge-off. If the creditor has
not lowered these expectations, and is merely allowing you to send
less than the minimum, the account may still become delinquent,
but at a slower pace than if you were making no payments at all.
As a simplified example, if the creditor's minimum payment due
is $50/month and you are sending $25/month, your account could
become 6 months past due in 12 months.
Do I still owe the balance on a charge-off?
Yes. In some cases, creditors stop charging interest on a charged-off
account, but there is no legal requirement they do so. In most
cases, a charged-off account is forwarded to a collection agency
or attorney who will contact you about repayment of the debt. In
these cases, it is possible that legal fees or other penalties
will be added to the balance.
Is a charge-off reflected on my credit report?
Yes, and the notation will stay on your credit report for seven
years from the date the charge-off occurs. Any balance outstanding
will also be reflected on your credit report. If you pay off the
charge-off within the seven years, the creditor should indicate
that the debt is paid on your credit report, but the original notation
of the charge-off will remain.
A charge-off is a more serious problem on your credit report than
being past due with your payments. Charge-off notations, particularly
if balances are still outstanding, could severely hamper your efforts
to get any new credit.
The above information should be understood to be a general
discussion of the subject matter and DOES NOT constitute
a legal opinion about the situation. For further information
please consult a qualified attorney.
Back to Basics Of |
