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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
(9 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.



(9 Votes)
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  • A
    Sep, 2020

    An account that was charged off in 2017 began posting derogatory remarks on my credit report on a monthly basis in January 2020. They stopped in June. Then, in August, they posted a late payment to another credit report. I disputed the late payment, but was unclear about the results.They have not contacted me about paying back the debt, not have they sold my account, not has there been any legal action. What are my next steps?

    • 35x35
      Sep, 2020

      Alison, I am not a lawyer, so please do not consider any information I share to be legal advice.

      The first thing I would do is to find out if the debt has passed the statute of limitations on debt. This is about the collectibility of the debt, not about whether it can appear on your credit report. It seems most important to me to know if the creditor could rear its head and try to collect from you. If so, keeping a low profile seems best, if the debt is not tiny. The charged off account has a negative impact on your score from all the delinquencies that preceded the charge off. A late payment seems less of an issue that being compelled to repay the debt. 

  • W
    Aug, 2020

    I took out a small personal loan back in 2018 to catch up on bills because I lost my job and I am a single mom. I was doing pretty good about keeping up on it but then other serious things came up and I couldn't make the payments. The bank then refinanced me back up to the amount I originally borrowed. I made payments on that for a couple months but then started having problems paying it again. The bank finally charged it off to the city courthouse. When I was served papers I went down to the bank and made an arrangement with them to lower my payments and they did. I was making these small payments to the bank without them charging me interest. I finally went in recently and just paid the whole thing off. Plus the court costs that they had. None of my payments are showing up on my credit report that I made any sort of payment at all in the recent months since they charged it off and I received no statements from them at all showing my payments made. What do I do?

    • 35x35
      Sep, 2020

      Whitney, good for you to demonstrate such persistence in paying your obligaton through some tough times! It is not an easy thing to do and many who wish to do so can't find a way to see the obligation through.

      I don't know if the creditor was obligated to report the monthly payments you were making. My guess is that they were not. However, the loan should show as $0 balance now that you paid it off. If it doesn't appear that way on the credit report from any bureau, contact that bureau and file a dispute. The dispute should contain your proof that the debt was paid off.

  • NP
    Jul, 2020

    Mr. Daniel - I had a line of credit loan at my Credit Union (CU), I defaulted on the loan and my account was charged-off in July 2014. My wife had 4 major surgeries 2014-2015, which devastated us financially. On May 5, 2017 my CU sold the $2,000.00 debt to a collection agency (CA). Back then, I only banked at the CU. I had family members who would continuously deposit funds in my account to assist with medical & personal bills from 2014 to 2017. My mortgage is also with the CU and they would automatically deduct the monthly mortgage. On May 24, 2017 the Credit Union deducted $1,700.00 from my share account and applied to the charge-off. Again on July 18, 2017 the CU deducted the remaining $300.00 and never notified the CA of the deductions. On August 26, 2017 we incurred Hurricane damage and a lot of documents were stored away so I had no records to fight the charge-off or collection; both reporting on my credit report. As of June 30, 2020 when I checked my credit report the CA was still currently reporting the balance as owed. Due to the pandemic, I have been home and move everything from storage. I started to shredding papers and found my CU actual statements reflecting the deductions. I was mad and happy at the same time. Can the CA be forced to delete the collection since the CU should have notified them of the deductions/payment? My credit score has been hit hard for 3 years due to the CU's & CA's error. I just don't want my file updated as paid. Do I have any recourse?

    • 35x35
      Jul, 2020

      Hi, Neal. Thank you for your question. I will share some thoughts with the understanding that I am not giving legal advice.

      The main hit to your score was when the account went delinquent, with each month you fell further behind lowering your score, then when the account was sent to collections. I think the collection agent should report the debt as $0 balance and reflect the date that it was paid. That won't eliminate the damage, but time has lowered the impact and, soon, the account will drop from your report.

      The Fair Credit Reporting Act mandates that after 7 years, and within 7.5 years, of the date of first delinquency, the account no longer appears on your credit report. If your account charged-off in July, then it likely first went delinquent 6 months earlier. That means it should drop off early next year, but for sure by a year from now. If any bureau still reports it after July of 2021, file a dispute to have it removed.

      To boost your score now, the key is to have active accounts in good standing. If you want to talk about that in more detail, email me at


  • E
    Jun, 2020

    Hi Mr. Daniel, I'm reaching out regarding student loans. My loans date as far back as 2003 with the most recent being disbursed in 2011. Each disbursement went into delinquent status a couple years after its respective disbursement date. However, I've come to learn, per my credit report, that each time my debt was sold to a new debt collector they entered a new account on my credit report and noted it in a way that made it seem that the account originated with them, that year. This resulted in it appearing as though I've accepted new student loans as recently as 2018 without making a single payment on them since taking "receipt" of them. Additionally, they entered a charge off for each "missed" payment so it appears that I have some 50+ charge offs PER loan, PER semester, PER year. I've worked EXTREMELY hard to rebuild/ re-establish and have an exceptional payment history now, aside from these glaring beauties on my report. This is literally the only thing standing between me going from sub prime to prime credit. I would greatly appreciate any advice you might offer as to how I can get these removed as the first date of delinquency is far past 7 years at this point. I've tried disputing them but it's impossible with so few characters and given that there isn't a proper dispute reason in the drop down menu.

    • 35x35
      Jul, 2020

      EJ, please forgive me for letting your question go unanswered. 

      You need to get formal documentation of the date of first delinquency for each loan. The source is the credit bureaus, but it is not a dispute, at this point, but a request to information you are entited to according to the Fair Credit Reporting Act.

      Please email me at I would like to ask a few questions so I can give you some more information and you can get this situation behind you.

  • L
    LaDonna P,
    Jun, 2020

    Creditor closed my account , I continued to keep making payments on the account. I never missed a payment, the account was listed on my credit report as closed by grantor. This month they updated the account to say that it was charged off as bad debt. I have never been late on this account since it was opened. And was not late even after they closed the account. I has never been reported to my credit as being late, but now they showed it as late, which it has never been and charged off. From everything that I have read the account does not qualify for a charge off unless it has been delinquent for more than 180 days. I'm confused. I was upset when they closed the account but now they are causing serious damage to my credit. I reside in New York, what can I do?

    • 35x35
      Jul, 2020

      LaDonna, the first step is to speak with the creditor. Do you have proof of the payments? I would hope they would do the right thing and correct the credit report when you can show you paid the debt responsibly. If they don't, go see a lawyer that handles cases regarding violations of the Fair Credit Reporting Act (FCRA).