If you’ve followed the advice to check your credit report on an annual basis you might have found some accounts that have been marked as “charge-offs.”
You may already know that this means the account has been written off on the original creditor’s taxes. The primary creditor has chosen to avoid pursuing the account.
Unfortunately, this does not mean that your legal obligation to pay the account has disappeared. In most cases, the original creditor will send that account on to a collection agency, who will proceed to try to collect the debt.
Once the collection agency has purchased or been given a charged-off debt they may handle it like any other debt. This means they may contact you to try to get you to pay the debt. If they determine that you won’t pay the debt they can also attempt to sue you in the hopes of getting a court to garnish your wages, levy your bank account, or put a lien on your house until the debt is paid.
Is it worth it to pay a charged off debt?
It is almost never worth it to pay off a charged off debt.
It will not help your credit. By the time a debt has been charged off it is already pulled your credit score down by a great many points.
Paying off the debt will do very little to help. It will always be on your account even after you pay it off. The only thing paying off the debt will do is reduce your overall debt, which can have a positive impact on your score as it accounts for up to 30% of what you owe. However, there are times you can negotiate a pay-for-delete plan, which means you pay the full amount listed as soon as the creditor agrees to remove the item from your credit report.
If you aren’t in danger of being sued you can often just do nothing and have about the same impact on your credit score. Eventually the charge-off will fall off your credit report, and you’ll move on with your life. However, if you are having trouble getting credit applications approved because of the charge-off it might be a good idea to address it just so you can move forward.
If you are being sued, then you need to contact an attorney right away.
While in some cases the attorney will advise you to fight the lawsuit, in many others bankruptcy will be the right answer.
Bankruptcy will discharge the charge-off so that you lose your legal obligation to pay it. This will raise your credit score, stop all collection activity in its tracks, and ensure that you come out ahead.
Hopefully, after your bankruptcy case is closed you can rearrange your finances in a way that ensures you never get into that position again. You can then work on using other methods to raise your credit score even more.
Need help? Contact Haysom Law today. We will be happy to discuss your financial situation.
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