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If an account is charged off do you still have to pay that debt?

Must you pay a debt a creditor places on charge off status?

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Bill's Answer
(8 Votes) | Find Learn Save

  • An account charge-off does not remove your obligation to pay the debt.
  • Know your rights under the Fair Debt Collections Practices Act.
  • Never ignore a summons you receive.

Let us define charge-off and other terms before we get to the central issue in your question.


A charge-off does not mean a debt is forgiven. When a debtor stops paying on a debt, a creditor will attempt to contact the debtor on the telephone and via the mail. When the number of days since the most recent payment reaches 120-180 days, the account is no longer considered current and the creditor is required by generally accepted accounting principles to "write-off" the debt. Writing-off a debt does not mean the debtor is no longer responsible for the debt, or that collection efforts cease.

The write-off date has almost nothing to do with the statute of limitations for debts. To learn more about statutes of limitations, read Which Statute of Limitations Applies to You.

National banks and federal savings associations must follow federal rules and guidelines for charge-offs. Both types of financial institutions must charge-off delinquent installment accounts at 120 days or five missed payments, and credit cards at “180 days past due after seven zero billings” (Allowance for Loan and Lease Losses (PDF), Comptroller of the Currency Administrator of National Banks).

At the write-off point, the creditor will transfer the debt to a late-accounts department, or has the option to sell the debt to a collection agent. The collection agent will buy the debt at a discount. However, the collection agent has the right to collect the entire balance due plus interest.

A charge-off / write-off does not change the legal status of the debt, or change the legal relationship between the creditor and the borrower. However, because the creditor classifies a charged-off debt differently from a current debt, the borrower can often negotiate a settlement for less than the present balance of the debt to after charge off. This would not have been possible when the the creditor considered the debt current.

Charge-Off & Debt Collection

A collection agent may use aggressive tactics to when contacting the debtor. The collection agent may threaten to call the debtor’s employer, file charges with the local sheriff, or say they will park a truck in front of the debtor’s house with a sign that reads "Bad Debt" on it. All of these tactics and many others are illegal under the Fair Debt Collection Practices Act (FDCPA). Start here to learn the rights consumers have in collections under the FDCPA.

A creditor — a debt collector that owns a debt account is a creditor — has several legal means of collecting a debt. But before the creditor can start, the creditor must go to court to receive a judgment. A court (or in some states, a law firm for the plaintiff) is required to notify the debtor of the time and place of the hearing. This notice is called a "summons to appear" or a "summons and complaint." In some jurisdictions, a process server will present the summons personally. In others the sheriff’s deputy will pay a visit with the summons, and in others the notice will appear in the mail. Each jurisdiction has different civil procedure rules regarding proper service of notice. (See Served Summons and Complaint to learn more about this process.)

If you ever receive a summons you should do as it instructs! This is not just a social invitation that you can ignore. In the hearing, the judge will decide if the creditor should be allowed to collect the debt. If the debtor fails to appear, the judge has no choice but to decide on behalf of the creditor.

Therefore, if you receive a summons, the first thing you should do is contact the law firm representing the creditor. Open a negotiation to see if they are willing to settle the debt. If not, it would be wise to respond as indicated in the summons. If there is a hearing, attend it and present your side of the story to the judge. Use facts, tell the truth, dress appropriately, and show the court respect. The court may or may not decide in your favor, but at least you exercised your right to be heard.

The court may decide to grant a judgment to the creditor. A judgment is a declaration by a court that the creditor has the legal right to demand a wage garnishment, a levy on the debtor’s bank accounts, and a lien on the debtor’s property. Which of these tools the creditor will use depends on the circumstances. We discuss each of these remedies below.

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Wage Garnishment

The most common method used by judgment creditors to enforce judgments is wage garnishment, in which a judgment creditor would contact the debtor’s employer and require the employer to deduct a certain portion of the debtor’s wages each pay period and send the money to the creditor. However, several states, including Texas, Pennsylvania, North Carolina, and South Carolina, do not allow wage garnishment for the enforcement of most judgments. In several other states, such as New Hampshire, wage garnishment is not the "preferred" method of judgment enforcement because, while possible, it is a tedious and time consuming process for creditors. In most states, creditors are allowed to garnish between 10% and 25% of your wages, with the percentage allowed being determined by each state. See Advice on Judgment Garnishment to learn more about wage garnishment.

Levy Bank Accounts

A levy means that the creditor has the right to take whatever money in a debtor’s account and apply the funds to the balance of the judgment. Again, the procedure for levying bank accounts, as well as what amount, if any, a debtor can claim as exempt from the levy, is governed by state law. Many states exempt certain amounts and certain types of funds from bank levies, so a debtor should review his or her state's laws to find if a bank account can be levied. See the resource State Consumer Protection Laws and Exemptions for an overview of each state’s rules.


A lien is an encumbrance — a claim — on a property. For example, if the debtor owns a home, a creditor with a judgment has the right to place a lien on the home, meaning that if the debtor sells or refinance the home, the debtor will be required to pay the judgment out of the proceeds of the sale or refinance. If the amount of the judgment is more than the amount of equity in your home, then the lien may prevent the debtor from selling or refinancing until the debtor can pay off the judgment. Again, every state has its own rules about property liens, so debtors with a judgment against them who own property should review their state’s laws to learn creditor can and cannot do to enforce its judgment. See the resource State Consumer Protection Laws and Exemptions for an overview of each state’s rules.

Debt Resolution

If you have a judgment against you, consult with an attorney licensed in your jurisdiction to learn how the judgment will affect you, based on your individual financial circumstances and your local rules.

It is not too late to contact the creditor or the law firm that either represented the creditor or bought the debt, and present them a settlement offer. Even with a judgment in place, the law firm must spend money to try to collect the debt. Getting a wage garnishment, levy, or lien takes time, and time to a law firm is money. The law firm may settle for a lump-sum payment. See "Debt Negotiation and Settlement Advice" before opening negotiations with a creditor. See "What Are My Debt Consolidation Options?" to learn more about your rights and options for resolving the debt.

Important! Get all settlement offers in writing before sending a check to the law firm or collection agent.

I hope this information helps you Find. Learn & Save.



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  • CJ
    Dec, 2013
    Phoenix, AZ
    I have a Chapter 7 bankruptcy, tax lien, and 2 charged-off school loans from the same major bank. At some point, they had sold the debts to a collection agency, who sold it to someone else, and so forth. Not one could validate the debt so they received no payment. Even now, I'm not sure I owe them. Either way, I recently found out that within the last few months, my personal information could have been compromised and available for sale due to lax school record security. Suspiciously, a month or so ago, I started receiving calls from a collections agency for the debts. I asked the agency to prove the validity of the debt and have heard nothing from them. At the time of the first collector call, I called the original lender to get any information I could on my account. They couldn't even provide me my account numbers. I verified their involvement with this new agency and was told that they work for the lender. The lender says repeatedly that they no longer have any account information for me due to the sale of the debt, yet they just sent me settlement letters. I have yet to contact them back because I don't trust this process. Can they try to collect it directly once it's been sold and proven invalid for each agency? Are they liable for lying to me about my account? PS, I believe I am near my statute of limitations within a year or two. Does this play a role? Should I be worried?
    0 Votes

    • BA
      Dec, 2013
      Once an original creditor sells a collection account, it is gone — the original creditor has no right to collect the debt. A collection account is like a car, iPod, or book. Once it's sold it's sold. However, like a car, iPod, or book, the original creditor can buy your collection account from the collection agent who has the current rights to the account. Some credit card companies have a reputation for buying collection accounts they sold previously.

      Before you make any settlement with either a collection agent or the original creditor, validate the debt. You mentioned you have been doing so, and I suggest you continue to push-back against collection agents that try to collect a debt the original creditor has all but told you it has virtually no record of.

      Regarding the original creditor or collection agents telling you untruths, review the Fair Debt Collection Practices Act to see if the lies create a private cause of action under the FDCPA.

      The nearing statute of limitations is significant. Under the FDCPA, a collection agent cannot pursue an unpermitted legal action against you. This means once the statute of limitations clock runs out, a collection agent violates the FDCPA if it files a lawsuit against you. I hasten to add some collection agents are either unaware of this FDCPA prohibition, or hope the person they sue doesn't know the law, and they sue anyway. Read the Statute of Limitations article to learn more.

      Should you be worried? Up to the moment the statute of limitations clock runs out, you can be the target of a lawsuit. Once the clock runs out, you can still be sued, but will have your state's statute of limitations and the FDCPA on your side.
      1 Votes

  • BJ
    Oct, 2013
    Los Angeles, CA
    In 2009 my month to month cable provider continued to charge me monthly even though my service was disconnected. I did not have the funds available to restore service so I returned my box. I called about the monthly charges that had accrued without service, and was told I could pay $75 of the $210 and the remaining $135 would be credited to my account. Instead, they charged off the $135 only 29 days after my $75 payment and 14 days before the full amount was due. The account was sold to a credit agency who reported a false amount to the bureaus. It was removed and sold to another company. I disputed it again, but they claim they validated the date and I disagree. My question is it legal to charge off an account before the printed due date on the statement, and is it legal the credit agency is still reporting this debt? The original amount is listed as $152 and that amount is not shown on any statement provided to me. What is my best course of action for removal?
    0 Votes

  • RW
    Jul, 2013
    Concord, CA
    Can a bank charge off a current account? I had fallen behind, but I brought the account current on my HELOC. The bank does not dispute that they got my check by the due date, and that it was sufficient to bring the account current. But they can't explain why they charged it off two days later. Is that right?
    0 Votes

    • BA
      Jul, 2013
      Charge-off is an accounting term. A charge off does not change the legal status of the debt, or change the legal relationship between the creditor and the borrower.

      It isn't clear to me how long you were delinquent and whether the lender has closed your account. They may be entitled to close the HELOC, due to the length of time you were delinquent.
      0 Votes

    • JG
      Jul, 2013
      Westchester, OH
      When a note is charged off — it is charged-off. Note no longer exists. Cannot sell the note, because the loan that backs the note — is Charged-off!!! Thus, note/loan is gone. All that remains is collection rights to the default debt. This is basic accounting. And, many people get harmed in court because they do not use correct terminology. Charged off accounts/notes cannot be sold. If debt collector states "account was not sold" — they are correct. Charged-off accounts are dead — and the account/note/loan cannot be sold. What IS sold is the collection rights to the charged off account/note/original loan. That is all that remains. Must use "collection rights" as terminology. This isn't hard to understand! Fight them in court and WIN, people are doing just that today. I beat two bottom-feeder collection firms. If you don't know you rights you don't have any, and they feed off of your ignorance.
      0 Votes

    • BA
      Jul, 2013
      Jonah, your interpretation of charge-off/write-off rules is incorrect.

      The rules for charge-off/write-off are set by the Federal Deposit Insurance Corp. (FDIC) in its Uniform Retail Credit Classification and Account Management Policy, the National Credit Union Administration (NCUA) in its Allowance for Loan and Lease Losses policy, and in the Generally Accepted Accounting Principles (GAAP). GAAP is a collection of rules and guidelines accountants follow when preparing and reporting financial statements.

      Neither the FDIC, NCUA, nor GAAP policies on charge-off/write-off carry the force of law. Regardless, nothing in the FDIC, NCUA, or GAAP policies require the bank, credit union, or other creditor to forgive, cancel, or stop collecting a charged-off/written-off account.

      There is no state or federal law I am aware of that requires a creditor to forgive, cancel, or stop collecting a charged-off/written-off debt.

      This is not to say consumers do not have rights when confronting a collection agent. See the hyperlinks in the original answer above to learn more.
      1 Votes

  • PS
    Jun, 2013
    Midland City, AL
    Had a charge-off on a line of credit following a divorce. Date of first delinquency was 7/10. A collection agent recently bought the account and reported it on my credit report as of 5/13. I'm in Alabama, and I see the statue of limitations is 3 years on credit cards. Not sure of the statute of limitations for a line of credit. Would the SOL for this account expire in July 2013? If so, what action can I take? I've read if a company buys an old charge-off that it's not legally binding because you don't have a written agreement with that company. I don't know if that is true or not.
    0 Votes

    • BA
      Jun, 2013
      I am not an Alabama lawyer, so I am not competent to give you legal advice. Consult with an Alabama lawyer who has consumer law experience for advice.

      Specific details about your Alabama line of credit and how both parties signed the contract matter. Alabama law is tricky regarding the statute of limitations for written contracts. The statute of limitations may be 6 years (Alabama Code § 6-2-34) or 10 years if signed under seal (Alabama Code § 6-2-33). What exactly "signed under seal" means is open to interpretation by the Alabama courts, and here is where an Alabama lawyer will need to review your line-of-credit contract to learn if an Alabama court will consider it to be signed under seal.

      Assuming for the sake of argument Alabama's 6-year statute of limitations applies, let's say an original creditor or collection agent files a lawsuit against you after July 2016. Because the statute of limitations clock runs out, you may raise the statute of limitations defense in your answer to the lawsuit, and ask the court to dismiss the case.

      You mentioned the urban myth that a collection agent may not collect a debt from you because you have a contract with the original creditor and not the collection agent. This argument is very weak in court. A much stronger argument is the debt has no validity because it is based on hearsay evidence. Talk with your Alabama lawyer about this line of defense should you receive a summons and complaint from an Alabama court.
      0 Votes

  • EB
    May, 2013
    Gary, IN
    I filed chapter 13 in July 2012. In April 2013 I was kicked out. I recently received a letter from my car finance company stating that my account was charged off in Sept.2012.(while I was in bankruptcy) and in the letter I was asked to call to learn about options that may be available to me. Is this legal for them to do? When questioned they said they had the right to do this and that they could even back date the charge off since my bankruptcy was dismissed. They also said I had 120 days to pay off the account in full. They have not notified me of that last part in writing.
    0 Votes

    • BA
      May, 2013
      I am assuming you stopped paying the auto loan when you filed the chapter 13. If you continued your payments, ask your bankruptcy lawyer to help you negotiate with the auto finance company about reinstating your car loan.

      If you stopped your payments and became delinquent, then the finance company may accelerate the loan and, essentially, demand you to pay it in full now because you were removed from the chapter 13 protection.

      Your only ammunition, as it were, are your words and your money. Try to use them to negotiate a new payment plan for your loan. Otherwise, you need to refinance the loan elsewhere. If you fail to do either the finance company has the right to repossess the vehicle.
      0 Votes