charge-off debt

Charge-Off Debt: My Other Dirty Little Secret

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Want to hear another dirty little secret? I have $39,717 in charge-off debt. Whatever you call it, charge-off, written off, or closed accounts, that’s A LOT of debt. And it stinks.

During my recent post, I Owe My Money an Apology, I touched on some of the reasons for this staggering amount of debt. 42% is charged-off credit card debt that I “won” in my divorce settlement. (Note: Community property also works for debt, too.) While 58% represents a dream-come-true-turned-sideways. It’s a open line of credit against a vacation home that I purchased in 2006 and was subsequently foreclosed on and auctioned off.

Now, I know that this debt is sitting there on my credit report. I see it every time I check my score. But the question becomes what to do about it.

Turns out the answer isn’t as straight-forward as you might think. There’s a lot of fact and fiction about charge-offs out there. I did a little research but I’m not an expert by any stretch of the imagination. Obviously!

What To Know About Charge-Off Debt

Charge-Offs Don’t Make Your Debt Go Away

Charge-off debt is considered derogatory debt and you are still responsible to pay it. Sadly, I once thought it was the easy fix for my debt problems. Per Experian website:

“Having debt charged off does not mean you no longer owe it. Typically, a creditor will turn over the debt to a collection agency. The collection agency will then pursue the debt. You owe the debt until its paid, settled, or discharged in a bankruptcy proceeding.”

The creditor may turn your debt over to collections or even sue you for the outstanding balance. From what I read through, they will not likely purse legal action unless the balance is substantial and worth their pursuit.

Charge-Off Debt Just Sits There

Actually, it looks like the balance could be charged interest. A Money Management International article states: “Interest will accrue on any unpaid balance until the debt is repaid. The original creditor or a collection agency can also add penalties in accordance with the original loan agreement and applicable laws.”

I can neither confirm nor deny that my accounts are accumulating interest as my credit report doesn’t indicate that and I haven’t received statement on these accounts in years. (I moved a lot over the last 5 years which is a whole other story.)

Charge-Offs Stick Around A Long Time

Not only are you still responsible for paying, even if you do nothing with it, charge-offs will haunted you. Transunion states that:

“In most cases, accounts that contain adverse information may remain on your credit report for up to seven years from the date of first delinquency on the account. Adverse information is defined as anything that a potential creditor may consider to be negative when making a credit-granting decision.”

7 years?!?! I found a blog that stated the 7 years starts from the date the account was charged off. Experian website says 7 years from the “original delinquency date.” Those seems like different dates to me!

And even know as I look at my own credit report now, I’m not even sure how accurate that is. One of my accounts was closed in 2008. The other was closed 2009. (Damn it! Now I have more questions than answers.) Ok, now I’m speculating that it must be from the last day of payment? That makes more sense since I haven’t paid on either since early 2014. Anyone know for sure?

Charge-Offs Impact Your Ability To Get Credit

Obviously, any potential lenders see charge-off as a risk. Since the debt is just stuck there in credit purgatory until you either pay or wait out the 7 years, getting an auto loan or mortgage may be difficult. I know that my credit score impacted my ability to secure an apartment lease. The good news, if there is any, is that Experian says that “the longer ago the delinquent or derogatory information occurred, the less it will negatively impact your credit scores.”

Personally, I was shocked that I was able to secure a lease on a nice apartment with a minimal security deposit but I did get raped on my auto loan interest rate. It’s embarrassingly high but I’m so grateful to have a car. I am also planning to refinance once my credit score is healthy enough, which I pray is very soon.

Charge-Off Debt Is Able To Be Settled

Yes. This is surprising. It seems that some money from you is better than none for many creditors. In an article titled, How to Remove a Charge-Off From Your Credit Report on Balance.com, the advise:

“To remove a charge-off, you should contact the original creditor to start negotiating removal of the charge-off. You want to convince the creditor to remove the charge-off from your credit report in exchange for payment. Before you make the call, know how much you’re able to pay on the account. The more you can pay and the sooner you can pay it, the more negotiating power you have.”

I can attest that this is possible. Remember that nasty equity line of credit from my foreclosed dream home? It was about $30,000. I had arranged some token payments with them for some number of years, even throwing them a measly $50/month when I was unemployed. I realized I was never was going to get out of it that way. So, I decided to fight it, claiming it an “invalid” debt. Well, without a lawyer, that fight didn’t last long. My newly defined “credible debt” was still staring in the face.

So I began negotiations to settle the debt. After some back and forth (you can counter their offer by the way), I arranged to settle the debt over 12 months for 35% the outstanding balance. The agreement is that once I complete those payments, they will mark the debt as satisfied. Now, it won’t fall off my credit report, based on what I’ve since learned, but it won’t be marked as delinquent. August 2017 will be my last payment!

What to Do With Charge-Off Debt

Obviously, it you get into a position to pay it, do it. If you can try to settle it, do it. However, I know it’s tempting to just wait it out.

Personally, I haven’t decided what to do about the remaining 42% of my charge-off debt. Quite honestly, I need to prioritize my tax debt. I will likely wait to see what happens with my credit score this fall when I pay off the line of credit charge-off and then decide. I don’t like have it sitting there. It’s like having a corpse in your closet. You might not see it every day but it really stinks.

Anyone out there with a “dirty secret”? Has anyone successful paid charge-off accounts? Anyone curious why I know what it’s like to have a corpse in my closet? 

 

 

 

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