June 19th, 2018 | Updated on June 28th, 2018
A credit account becomes a charge-off when it is way past due. In most cases, a charge-off takes place after about six months of missed payments, though the installment loans might be charged after four months of failed payments.
During this time, most creditors get the feeling that the chances of recovering the money are nil.
The creditor, as a result, removes that account from its active status and keeps it as a charge-off account in the ledgers and credit reports.
For any lender, the process of charge-off is more of an accounting act. When a creditor marks an account as a charge-off, he writes it off as a loss of debt rather than a potential income source.
It is a severe form of credit delinquency on the part of any lender as it is no longer a matter of a single missed payment. It is a bad debt that negatively impacts the credit scores.
Read more about charge-offs here: Credit Repair Companies
1. The Original Creditor Might Not Own The Charge-Off Debts
Once the account has been kept as a charge-off, the original creditor does not want to deal with it. However, that does not mean that it stops existing and instead, the debt is generally moved to an internal payment collection department to attempt to recover some of the money.
In case of the absence of an internal payment collection department, the debts are transferred to an external debt collection agent.
You can check your credit reports to know who the current owner of your debts is. When an account is moved, it gets marked as transferred on the credit report and the new owner is mentioned.
The original account is duly closed on the credit report after it is sold off to a collection agency. There will be a new entry on the credit report containing the details of the transferred debt account.
2. The Responsibility Of The Charge-Off Still Lies On You
The debt exists even after it is transferred and you are still responsible for paying it regardless of where it ends up after the account has been written off.
The contact that you signed while taking the loan mentioned that the debt will remain till it is paid back in full.
Also, the amount that you owe legally does not get altered because the collections agency purchased the debt at a price less than its actual worth.
You are obliged to pay the amount that you own contractually, and that is usually the amount that you borrowed minus from the amount that you have already paid back, including the interests applicable.
There are many scrupulous agents that take in the payment without even owning your account, and thus, you need to ensure whom you are corresponding with when it comes to paying back.
3. Negotiating With The Creditors May Speed Up The Removal Of Debts
If you are planning to buy a vehicle, home, or other such large investments which need a line of credit, you might not be in a position to wait until you get a charge-off.
In such a scenario, you or any reputed credit repairing company working for you might be able to negotiate with the original creditor to get the charge-off removed.
There is a method known as pay for deleting which can get the charge-off removed from your account in exchange for paying some or all of the debts in the report.
However, it is important to keep in mind in this regard that pays for deleting is not accepted by the major credit bureaus as they opine that it is a violation of credit policies.