“CHARGED OFF” DOES NOT MEAN THE DEBT IS NO LONGER VALID
If you have a delinquent debt, after some time it will show up on your credit report as “charged off”. A frequent inquiry is “what does this mean” and can I still be sued for it?
“Charged off” does not mean the debt has been canceled; it is merely an accounting term useful for tax purposes. You still owe that money but likely owe it to another party.
If you see “charged off” appearing on your credit report, this means that the creditor is letting other potential creditors of yours know that they had to write off the debt as a bad debt (rather than an asset for accounting purposes) because you did not pay your bill. In most cases, that creditor does not end up being the one to collect the debt from you, as they will sell it to a collection agency. Since you owe the creditor, the debt is his to assign to another party who jumps into the original creditor’s shoes and can sue you as if you originally contracted with them.
Creditors collecting on debts must do it legally. They must follow their state and federal collection practices acts. They must also report your history with them accurately and legally according to state and federal credit reporting acts. Your bad history will show up for seven years. If you finally pay the debt, then your report should be updated to include an indication that the debt has been paid, such as “charged off, paid” or “charged off, settled.” This looks better than merely “charged off” because it looks like you paid even though it was financially very difficult.
If you have a valid defense to paying the debt, you are entitled to indicate that in an explanation that will show up next to the adverse incident on your report. This is a step to take while settling the matter with the creditor. In negotiations for settlement, consider including a clause in the settlement agreement that the creditor will not report the debt negatively on your credit report, and as always, put everything in writing.
LawRefs 