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Collection of Written-Off Debt

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Daniel Cohen
UpdatedMar 27, 2023
Key Takeaways:
  • A written-off debt can still be collected by a creditor or a collection agent.
  • If the debt was forgiven and a 1099-C was issued, it may not be collected.
  • A debt can be forgiven, a 1099-C sent to IRS and yet you don't get one.
Can a creditor still collect on a written-off debt?

I was told by the FTC that after a company has written off a bad debt on their taxes, they are no longer able to collect the debt themselves that the only option is to sell the debt. The FTC also informed me that they can no longer charge interest or penalties on this debt. I am having difficulties finding this information in print and was wondering if you could help. I have looked all over the FTC Web site and can find nothing. I have also scanned your Web site and found several references to companies being able to charge interest and penalties. Which is true? I do not know what to believe at this point. Can they or can't they collect on the debt? Can they or can't they charge interest?

There is a considerable amount of confusion in the information you received. I will go through your message point by point to clarify what you have written.

1) ...after a company has written off a bad debt on their taxes, they are no longer able to collect the debt themselves...

If the original creditor writes-off the debt and issues a 1099-C, that means the original creditor has forgiven the debt and is claiming the loss on its taxes. The 1099-C is a disclosure to the IRS that the borrower has imputed income in the amount listed on the 1099-C. Because the creditor forgave the debt it can no longer be collected upon. This is not a Federal Trade Commission (FTC) rule. Conversely, if there is no 1099-C, then the original creditor has the option to collect the written-off debt itself or it may sell the collection account to a collection agent.

2) ...can no longer charge interest or penalties...

This issue is decided by each state legislature. Some states allow original creditors or collection agents to charge more interest and fees than others. You mentioned you reside in Kansas. See the resource Kansas Collection Laws for more information.

3) Can they or can’t they collect on the debt?

Yes, it can collect if there was no 1099-C issued. The creditor may continue to collect on written-off or charged-off debt because forgiven debt is not the same as charged-off or written-off debt. Charged-off or written-off debt may become forgiven, but most is not.

If you are sued by the original creditor or a collection agent, the statute of limitations may be a viable defense. I suggest you speak with an attorney in your state who has experience with debt law to verify your rights.

4) Can they or can’t they charge interest?

To the extent the charging of interest and fees is allowed by your state's laws, yes.

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



Dealing with debt

If you are struggling with debt, you are not alone. According to the NY Federal Reserve total household debt as of Quarter Q2 2022 was $16.15 trillion. Student loan debt was $1.59 trillion and credit card debt was $0.89 trillion.

A significant percentage of people in the US are struggling with monthly payments and about 26% of households in the United States have debt in collections. According to data gathered by from a sample of credit reports, the median debt in collections is $1,739. Credit card debt is prevalent and 3% have delinquent or derogatory card debt. The median debt in collections is $422.

Each state has its rate of delinquency and share of debts in collections. For example, in Arizona credit card delinquency rate was 3%, and the median credit card debt was $441.

To maintain an excellent credit score it is vital to make timely payments. However, there are many circumstances that lead to late payments or debt in collections. The good news is that there are a lot of ways to deal with debt including debt consolidation and debt relief solutions.

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TTapas kanti kumar, Jan, 2020

Thank you for the information! It is helpful to me.