How to Handle Charge-Off Accounts

Figure out a payment plan to handle charge-off accounts and avoid collectors.

Figure out a payment plan to handle charge-off accounts and avoid collectors.

A charge-off account has been written off as bad debt and the lender deems it a business loss due to non-payment. Creditors consider charging off accounts after about six months of attempting to collect a debt. The time varies from creditor to creditor. You're not off the hook and your phone may keep ringing because the debt remains. Collection agencies buy the accounts from lenders and hound you for payment. You can take steps to satisfy the debt and avoid annoying calls.

Make sure your debt is still legally collectible when a collector contacts you. Debts stay legally collectible for about four to five years from the date of your last payment, depending on the state. Collectors can contact you throughout this period. Sometimes the calls stop and you might think you are free from phone calls after a certain time. However, collection agencies often sell the charge-off accounts to other agencies, which can start the ringing in your ears again.

Contact the office of the state attorney general to determine the statute of limitations on debts. If your debt has expired, but a collection agency still contacts you, write to the agency to explain you believe this to be an uncollectible debt. The agency may not contact you again once it receives your letter, according to the Federal Fair Debt Collection Practices Act.

Verify that the company contacting you represents your charge-off account from the original creditor if your debt remains legally collectible. Have the company send you information to prove it bought the debt from the lender, which may include copies of accounting reports or contracts. If the company fails to provide the information and tries to sue you, you can use the non-response as a defense that the debt was not validated. You can even sue them back in a counter-claim.

Negotiate a payment plan with the collection agency to pay off a legitimate debt. Take a close look at your budget and see what you can afford. Collection agencies are looking for money, and you can usually reach an agreement on a reasonable monthly fee. Confirm the last payment you made with the original creditor. A charge-off account must be erased from your credit report after seven years from the date of the last payment activity, according to the Fair Credit Reporting Act. Making a new payment on an account close to that seven-year limit can start the cycle all over again.

Reach an agreement to avoid court action. Collectors can get a judgment against you if you don’t pay over a certain period of time. Creditors usually succeed in obtaining a judgment and can take money from your bank account or take a portion of your wages by contacting your employer. Garnishment laws vary from state to state, and some states prohibit garnishment. Check with the state attorney general for laws in your state. Have the collection agency put the terms of your payment agreement in writing before you make any payments.


  • Your credit score drops significantly from a charge-off account. After you have paid what you owe, wait 60 days and check all three credit bureau reports to make sure the account is listed correctly and that the original creditor adds to your credit report the account is a paid charge-off. Although it won’t change your credit score, lenders tend to be more understanding of a charge-off account than they are of an unpaid account.
  • Consult a consumer credit counseling agency or debt management plan service to help pay off other debts you may have and avoid further charge-off accounts. These agencies and services can contact your creditors and ease your payment plans by reducing interest rates and fees.

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About the Author

Jerry Shaw writes for Spice Marketing and LinkBlaze Marketing. His articles have appeared in Gannett and American Media Inc. publications. He is the author of "The Complete Guide to Trust and Estate Management" from Atlantic Publishing.

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