You've tied the knot, both have decent jobs and together your income is more than sufficient to afford payments on that car you've been looking at or that condo that's within walking distance to your jobs. As generally recommended, you both requested your credit reports to ensure your loan requests won't meet any unexpected hitches. To your surprise, you discover one of you has a debt described as "written off." When you make this discovery, it's probably best to follow up to determine how this will affect your credit.
Written Off Debt
If you owe money to a creditor and you haven't made an effort to pay it, the creditor will remove the debt from its books and chalk it up to a business loss. This can also be listed on your credit report as "charged off" debt, depending on the credit reporting agency. Written off debt reported to a credit-reporting agency essentially means that the creditor has determined that there is no hope of recovering the money you owe.
Implications of Written Off Debt
Writing off a debt, for the creditor, is simply an accounting entry that allows it to deduct the debt as a business loss on its taxes. This does not mean that the creditor has forgiven the debt, or that the debt is no longer owed. It simply means that the original creditor will no longer attempt to collect the debt. The designation of written off debt remains on your credit report for seven years.
What Else Can Happen?
Though the original creditor will no longer attempt to collect the debt, that doesn't mean the creditor won't attempt to recover some of the loss. One way it can do this, is to sell the debt to a debt collector, and the entry may note "transferred to" with the name of the collection agency. Under the collection section of your credit report you will see an entry that indicates "transferred from" with the name of the original creditor. Collection activities will generally proceed with the usual phone calls and letters attempting to collect the debt. If the written off amount is substantial, the debt collector may file a lawsuit against you in an attempt to collect, particularly if you have a steady job, which makes a wage garnishment a possible collection tool.
What Can You Do?
If you have a write off on your credit report, check to see whether it was sold to a debt collector. If not, you can approach the original creditor and attempt to negotiate a settlement of the debt, whether for full or partial payment. If the creditor agrees, and you pay them, the entry will be changed to "paid charge off," which is better, but still negatively affects your credit score. Your other option is to negotiate with the creditor to remove the bad entry from your credit report once you have paid the agreed upon amount. If you go this route, always negotiate in writing and do not pay until you have a written agreement regarding your credit report. If you pay without a written agreement, the creditor has no incentive to do you any favors and the entry will most likely remain.
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