Question: My debt has been charged off on my credit report. I read that I do not owe the debt once it is charged off. Do I still owe the debt?
A: YES. Is that clear enough?
You still owe the charged-off debt. Many people mistakenly believe a creditor does not have the right to collect a charged-off account. This is a common statement on the internet. And, it is wrong. Simply wrong.
A charge off is merely a bookkeeping entry. It literally is the creditor moving the account from an asset to a liability. On your credit report, a charge off means that the creditor does not think they can collect on the debt because it is “seriously delinquent.”
However, a chargeoff does not affect your obligation to pay the debt. When it becomes apparent to your creditor that you are not paying and are not going to pay any time soon, then the creditor must “charge off” the debt. Usually that happens 6 months after you default. In other words, most creditors will mark an account as a charge off 6 months after you stop making payments on that debt. The creditor usually stops posting interest or late fees to the account when the loan becomes nonperforming and the creditor is not getting paid.
All defaulted debts are charged-off. Most charge off accounts are then sent to either a collection agency or sold to a debt buyer. (Yes, there is a difference between a collection agency, such as NCO Financial and a debt buyer such as Midland Funding or Persolve.) Sometimes these debts are sold several times to investors who will try to collect the account years later.
For example, maybe you have a credit card with Wells Fargo. You get behind and Wells Fargo charges off the account. Wells Fargo then may sell the account to CACH. CACH may try to collect on it. If they do not think they can collect on it, CACH may sell the debt to FFIF-ACM (also called FFIF). FFIF-ACM then may try to collect the debt. If they cannot collect on it, they may sell it to someone like Riverwalk Holdings. Riverwalk Holdings may then sell it to Persolve. Any or all of those companies may attempt to collect on the debt, even though it is charged off.
If you file for bankruptcy, you should include charged off debts in your bankruptcy. If you have a charged off account on your credit report, you should monitor that report and see if the debt is sold. If you are sued on a charged off account, do not bury your head in the sand and assume that the lawsuit is invalid simply due to the charge off. You should talk to an attorney about your options.