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Advice on Payment For a Charged Off Account

If an account is marked as a 'Charge Off' and closed, do I still have to pay it back?

I have an account I was working with that was past due (business personally guaranteed) we agreed to a finally payment of $1100 to end it and settle. I haven't yet paid it although I was supposed to in January but haven't had the funds. I'm now seeing that they actually put it on my report, marked it as a charge off and closed it... so does that mean that I now don't have to pay the $1100? And if I was and am aren't they supposed to mark it as paid less than full?

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

The status of an account on your credit report has little bearing on your legal obligation to pay the debt. Even if the creditor reported the account as having a $0 balance, if you did not actually pay the debt, then you are likely still liable for the obligation. Also, certain creditors do not report their accounts to the consumer credit reporting agencies, so the fact that an account is not appearing on your credit report does not mean that you do not owe the debt. If you honestly owe this debt, I encourage you to resolve it, as the creditor may pursue further collection activity and may even sue you (in the future) if you fail to make payment on the account.

From your question, it sounds like the creditor in question has reported this account on your personal credit file, but that the account is showing up as having been closed and charged off by the creditor. The fact that an account is closed and charged off does not mean that the debt is not still owed. "Charge off" is an accounting term used by creditors, meaning that a creditor has transferred an account from its "accounts receivable" books to its "bad debt" ledger. Credit issuers are required to do this by the Federal Office of the Comptroller of Currency, in an attempt to prevent banks from inflating future earnings statements with old and defaulted accounts. For the consumer, the only real consequence of an account charging off is that the account will report as a negative item on the consumers' credit reports; it does not mean that the consumer no longer owes the debt. An account being closed simply means that the account is no longer an active line of credit, though any debt incurred prior to the account being closed must be paid.

If at all possible, I encourage you to pay the settlement you negotiated with the creditor, as settling the account will prevent the debt from causing you any future problems. Before you finalize the settlement and make payment, you should obtain a written settlement agreement from the creditor outlining the specific terms of the settlement agreement, including how the creditor will report the account to the credit bureaus once payment is made. Generally speaking, creditors will report settled accounts to the credit bureaus as either "settled in full," "settled as agreed," or "settled for less than full balance." While a status of "settled in full" is viewed as slightly better than the other two statuses, the difference is not important enough for you to expend significant time and effort in negotiating how the account will appear on your credit report.

For additional information for consumers struggling with debt, I encourage you to visit the Debt Help page.

I wish you the best of luck in resolving this account, and hope that the information I have provided helps you Find. Learn. Save.



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