How Charge-Offs Impact Your Credit

If you’ve been in financial trouble for some time you may have seen the words “charge-off” on your credit report. It’s important for you to understand this term and to know exactly how much impact it’s having on your financial future.

You should also know the risks of leaving a charged-off debt unaddressed.

You’re Still Responsible

A creditor who charges off a debt is indicating the following:

  • They believe the debt is unlikely to be paid.
  • They’re taking the debt off their books and are likely to sell it to a collection agency.
  • They are closing your account.

None of these items removes any responsibility you have for the debt. Creditors may still report on the debt. You are still vulnerable to a lawsuit. This account will continue to drag down your credit score.

The Statute of Limitations Matters

There are two different statutes of limitations to consider.

The first is the 7-year length of time that a charged-off debt may remain on your credit report. The second is the length of time state law allows collectors to pursue a judgement on a given debt.

In the state of New York, the statute of limitations is six years.

Keep in mind many companies will try to re-age debts to keep them within both of these statutes. Fortunately, this is a violation of the Fair Debt Collection Practices Act.

In New York, there are ways to revive the statute of limitations, essentially restarting the clock. If you have a very old debt, you should avoid admitting you owe any debt. This includes choosing not to pay the debt in whole or in part. Be wary of any debt collector agreeing to accept a very small payment. This is often a sign of a company that’s trying to trick you.

Remember, you never have to speak to a debt collector. Sending them a certified letter demanding that they end all phone contact can keep you out of stressful situations where you end up making a bad decision.

Your Credit Score Suffers

Any charged off account can have an adverse impact on your credit score. Unfortunately, even paying the amount in full might not help your score very much.

Most of the people we speak to don’t even have an option to pay off the debt. Indeed, many of our clients are facing down multiple charge-offs that they’ve accumulated over the years. By the time you have accumulated multiple charge-offs your better bet is generally to take advantage of a financial fresh start via the bankruptcy process.

If you’re in financial trouble, Simon Haysom, LLC, Attorneys-at-Law, can help.

See also:

Will Your Life Be Better During Bankruptcy?

Is It Ever a Good Idea to Settle a Debt?

Can a Collection Agency Send Text Messages?

 

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