What is a Charge off?

September 6, 2012

Many of our clients ask: What is a “charge off”?

As consumer advocates, we have been seeing a rise in this credit item; and, excluding bankruptcy or a judgment, it is the worst possible negative mark on your credit history for an account.  However, there are many misconceptions and a lot of misinformation about what a charge-off is and what can be done about it once it’s on your credit.  In the real estate realm, we have recently seen lenders on lot loans and lines of credit use a charge-off instead of foreclosure to simply remove the delinquent item from their books.  However, the danger is that the consumer may think that a charge-off status means the end of the debt.  This may not be so.

So, what is a charge off?  An account is usually charged off after 180 days, or six months, of less than minimum payments.  The “charge-off” status will remain on your credit for seven years from the charge off date.  Also, most important to keep in mind is that once a debt is charged-off, it is not forgiven or discharged.  As long as the debt remains unpaid, the creditor can continue attempts to collect on the account which may include annoying collections calls, and worse – a lawsuit to collect the judgment.  Future creditors and lenders consider a charge-off a serious negative credit item, so it is in your best interest to avoid a charge-off before it happens (if you can), or remove it as soon as possible.

The best way to avoid a charge off, of course, is to pay your monthly payments on time and in full.  However, if you get to a point where you cannot make your payments, you need to get organized and act fast to protect your credit.  Communication with your creditors is key when you are working through a difficult financial time.  It is easy to feel embarrassed or overwhelmed, but the fact is that many creditors have multiple programs to help distressed customers.  Since the fall of the domestic financial markets in 2008, most people have experienced some kind of financial hardship – be it loss of employment, decrease of employment, loss to value of assets, medical or other family issues, divorce, or death of a loved one.  The best thing to do it to educate yourself as to the state of your financial affairs.  Sometimes it’s better – or worse – than you think.  If you are not a numbers person or feel overwhelmed, visit a non-profit consumer counseling center.  These centers can be found through the Making Home Affordable website (www.makinghomeaffordable.gov) or through other local community organizations (ex. United Way).  Again, these centers do not charge a fee for their services and can help you in your time of need before things spiral out of control.  These agencies may even help you to communicate your hardship to the creditor and find a forbearance or payment modification that will fit your budget.  If you need more muscle, find and hire a consumer law attorney to assist you and advocate for the best possible results.  If you are subject to a lawsuit, it is even more important that you have legal representation to prevent the situation from getting worse.

If a charge-off cannot be stopped, it can be fixed after the fact.  Again, the key is being in communication with the creditor and finding a common ground for acceptable terms that they will extend and that you feel you can meet.  Consumer Law Attorneys or credit counselors can re-negotiate the terms of the debt to make it more affordable.  However, be vigilant in who you seek advice, as there are many scammers out there who make grand promises and do nothing more than take your money.  Your best bet is a HUD-certified credit counseling agency or a licensed attorney who practices in the state where you live.  Make sure to get any agreement from a creditor in writing – especially the fact that they will remove the charge-off if you keep up your end of the agreement.  And once you have kept your side of the bargain, make sure they keep theirs and actually remove the charge-off from your credit report.  Keep track of each person you speak with and get their ID number or extension for tracking purposes.  It is important to note that the only way to remove a charge off from your credit is to wait seven years or to negotiate with the creditor to have it removed after you pay the account in full or settle it.  When paid, your credit report will be updated to a status of “Charged-off Paid” or “Charged-off Settled”. Either is better than a simple “charge-off” that is unresolved.

Hopefully, this article has answered the questions “what is a charge off?”  All in all, a charge-off is a negative credit situation.  However if you deal with it, you will not have to wait seven years to gain new credit.  And, if you have waited it out, make sure that the item is removed promptly.  For more information on how the Consumer Law Attorneys at Soboleski Law can help, contact our Consumer Attorneys for a discussion of your rights.

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