If you learn that a troublesome debt is being charged off, you may be delighted with relief because the creditor is no longer chasing you down to pay that debt. While this may sometimes be the case, the obligation may still have a negative effect on your financial well-being.
This post will explain why.
Essentially, charge offs are actions taken by creditor to balance its books. From a pure accounting standpoint, outstanding debts are considered assets that can be taxable. If a debt is uncollectable, it may no longer be considered an asset, which in turn saves the company money in potential tax liability. Therefore, such debt may be “charged off.”
So while the debt may no longer be a part of a creditor’s balance sheet, it still may show up a consumer’s credit report, and may stay there for up to seven years.
So what may an embattled consumer do about this? Indeed, payment arrangements can be made to pay the charged off debt. Also, proper credit use can help eventually in rehabilitating one’s credit report, even though it may take some time. For those people in dire financial straits, a bankruptcy may help. A bankruptcy essentially eliminates debts so that a debtor can have a fresh financial start. If a discharge is granted, charged off debt is also forgiven.
It is worth discussing your situation with an experienced bankruptcy attorney so that you understand the benefits and risks of seeking such protection.
The preceding is not legal advice.