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Mark Cappel
UpdatedJun 17, 2024
Key Takeaways:
  • 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.

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?

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.



Struggling with debt?

If you are struggling with debt, you are not alone. According to the NY Federal Reserve total household debt as of Quarter Q1 2024 was $17.69 trillion. Student loan debt was $1.60 trillion and credit card debt was $1.12 trillion.

According to data gathered by from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 10% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.

The amount of debt and debt in collections vary by state. For example, in Pennsylvania, 23% have any kind of debt in collections and the median debt in collections is $1657. Medical debt is common and 9% have that in collections. The median medical debt in collections is $500.

Avoiding collections isn’t always possible. A sudden loss of employment, death in the family, or sickness can lead to financial hardship. Fortunately, there are many ways to deal with debt including an aggressive payment plan, debt consolidation loan, or a negotiated settlement.



AAndrea Johnson, Jun, 2023
BBetsalel Cohen, Jul, 2023
Andrea, thank you for your response. The information in the article refers to a charge-off: When a creditor sends a charge-off letter, they are notifying the borrower that their debt has been charged off. It should be noted that this is not the same as a legal document or a cancellation of debt letter. A charge-off is an accounting procedure where the creditor regards the debt as unlikely to be collected and treats it as a loss on their financial records. They might sell the debt to a third-party debt buyer. The charge-off will most likely be reported to the Credit Bureaus. Your information about cancellation of debt (COD) is correct.
I am currently fighting with a creditor that has placed a charge off on my Equifx credit report twice for the same debt. Exact same account number, amounts, dates, everything the same. I have complained to the the cfpb, Equifax and the account has come back verified. My other 2 credit files only have the charge off listed once so; it seems that Equifax is the only CA complicit in the fraud. This goes against Drewes Law about filing the same account twice. The creditor didn't sell the debt, so they are just trying to make the charge off have the worst impact as possible. What can I do?
EEric, Dec, 2020

I never paid a $3700 student bill from Penn State. They "charged off" and sold the debt to a 3rd party then hit me with one 120 day a year for 4 yrs. On the 5th year (2020) they've hit my Transunion only with about seven 120 days late in a row; I thought once an account was charged off and sold they couldn't report my account late or report a balance (which my reported balance is 0) ? Please help!

JJosh, Aug, 2021

Hello Eric,

Thank you for reaching out. You are correct if you think there is an error in the reporting. However, creditors can continue to post details that are accurate to the reporting agencies.

Eric, if you are finding that your debts are becoming difficult to sustain. May I recommend our partner Freedom Debt Relief. They can be reached at 800-852-1431 and be able to provide you with a free consultation regarding your financial options.

Regards, Josh
Regards, Josh

RRon, Nov, 2020

I had a charge off in 2013 on a home equity line of credit. The bank took me to court to try and collect the debt in 2016 and it was dismissed. Ii recently filed for bankruptcy and the creditor sent the written off debt with 2 years of interest added to it is this legal if the case was dismissed? Can they add interest on the loan for 2 years if it's not been heard in front of a judge?

DDaniel Cohen, Nov, 2020

Ron, are you doing the bankruptcy on your own or with an attorney? If an attorney, then ask him or her. If not, consider hiring one, or at least consulting with one. A lawyer needs to review what was dismissed. It isn't clear to me who dismissed it and on what grounds, as you later say it was not heard in front of a judge. Maybe you mean a judge dismissed it on some grounds before a full hearing, but I am not sure. The fact that a debt was charged-off doesn't mean you don't owe it. There may be a legal right to continue to charge interest, though many creditors choose not to.

The type of bankruptcy you file, whether you are still in the home, the state in which you file and its exemptions from collection for property and its statute of limitations on debt all can make a difference. Be cautious and get solid legal advice.

DDaniel Cohen, Nov, 2020

Ron, are you doing the bankruptcy on your own or with an attorney? If an attorney, then ask him or her. If not, consider hiring one, or at least consulting with one. A lawyer needs to review what the judge wrote when dismissing the previous case.

The type of bankruptcy you file, whether you are still in the home, the state in which you file and its exemptions from collection for property and its statute of limitations on debt all can make a difference. Be cautious and get solid legal advice.

SShaniece, Nov, 2020
Not sure if this was asked but I have a charge off from 2017 that still reports missed payments til this day. Is this allowed?
DDaniel Cohen, Nov, 2020

Shaniece, the missed payments will remain on the credit report for 7 years after the date of the first missed payment. As time passes, the effect on your credit score diminishes. If improving your score is an important goal, be sure you have active accounts that appear on your report that show you in good standing.