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Advice on Dealing with Charged Off Debt Accounts

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Mark Cappel
UpdatedJun 11, 2024

I have some charged off credit cards, do you have any suggestions for negotiating repayment plans?

I have some charged off credit cards that I cannot afford to pay for. Do you have any suggestions for negotiating repayment plans that will stop the interest?

“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 consumer’s credit reports; it does not mean that the consumer no longer owes the debt. Despite what it sounds like, an account being charged off does not forgive the consumer for liability for the debt in question. Creditors can continue their collection efforts to secure payment on charged off accounts.

Resolving the charged off account appearing on your credit report should have a positive impact on your credit rating. The past delinquency will not be removed from your credit report, but it should reflect a $0 balance on this debt. While the past delinquency and charge off will continue to negatively impact your credit rating, the impact should be much less if you resolve the outstanding balance. Resolving this account should remove an outstanding balance from your credit profile, and it will reduce your “debt to available credit ratio,” which should also have a positive impact on your credit rating. Because I do not know the other details of your credit history, I cannot tell you how much resolving this debt will improve your credit score–the increase in your credit rating may be quite large or very small depending on how many other accounts and other factors are currently being reported on your credit file. For more information about credit, credit reports, and credit scoring, I encourage you to visit the Credit Information page.

You may have noticed that I have used the word “resolve” rather than “pay” thus far in responding to your question. The reason I do not like to speak of “paying off” the account is that it implies paying the full balance of the debt. You should keep in mind that many creditors will agree to reduced-balance settlements on delinquent accounts such as yours. In many cases, I have seen creditors accept as little as 30% to 50% of the balance owed to resolve an outstanding debt. Generally speaking, creditors will require any settlement offer to be paid in a single, lump sum payment, though some creditors may allow you to pay a settlement over the course of a few months. Since you are talking about “paying off” this debt, I assume that you have access to adequate funds to pay the account in full. If that is the case, I would strongly encourage you to contact the creditor to negotiate a settlement rather than paying the balance in full. If you are able to negotiate a settlement with the creditor, you should obtain a written settlement offer from the creditor prior to tendering payment. If you choose to settle this account, your credit reports may list an account status of “settled in full,” “settled as agreed,” or “settled for less than full balance.” These account statuses are not considered as positive as a “paid in full” status, but the difference is generally negligible, especially considering the amount of money you may be able to save by settling the debt.

If you would like to read more about debt, and the options available to consumers who are struggling to pay their bills, I encourage you to visit the Debt Help page.

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



Debt statistics

Debt is used to buy a home, pay for bills, buy a car, or pay for a college education. According to the NY Federal Reserve total household debt as of Q1 2024 was $17.69 trillion. Auto loan debt was $1.62 trillion and credit card 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 8% 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 Tennessee, 32% have any kind of debt in collections and the median debt in collections is $1892. Medical debt is common and 18% have that in collections. The median medical debt in collections is $888.

While many households can comfortably pay off their debt, it is clear that many people are struggling with debt. Make sure that you analyze your situation and find the best debt payoff solutions to match your situation.



SSam, Oct, 2008
Hi Chris--if your business is a sole proprietorship, then there is really no difference between a personal bankruptcy and a business bankruptcy. For sole proprietorships, there is no distinction made between personal debt and business debt, so any bankruptcy filed would probably need to address both. However, if your business is a corporation or LLC, your business probably could file bankruptcy without your being required to file personally. The catch is that most banks require owners of small businesses, even if they are corporations, to personally guarantee their business debts. A personal guarantee could allow your business' creditors to pursue you for payment even after the business has filed for bankruptcy protection. So, from a practical perspective, many small business owners are forced to file personal bankrutpcy when their business goes bankrupt. In regard to your secured debt, regardless of the type of bankruptcy you need to file, you may be able to reaffirm on your secured debts, allowing you to keep the collateral if you continue to make the required payments. However, if you are closing the business, it may not make sense to go to this trouble to retain the business assets if they will no longer be used. The most important thing for you to do at this point is to go speak with a qualified bankruptcy attorney in your area to discuss your business and personal finances and to help you determine the best way to resolve your business and personal obligations. I wish you the best of luck!
CChris, Oct, 2008
I am considering bankruptcy for a business that I don't feel can be salvaged. The business has considerable (over 100,000.00)secured and unsecured debt.If I file Chapter 7, can I attempt to manage the secured debt outside of the filing? Does filing the business bankruptcy mean I have to file personal bankruptcy as well? Also what should I expect from credit card companies in this situation? Thanks,chris
NNithin, Jun, 2008
I am guessing that you are referring to negotiating lump sum payments on your credit card accounts with the money from the sale of your home? Keep in mind that credit card companies, in most cases, will not settle for a lower amount on an account that is not past due yet. Sure you can use the money form the sale of your home to pay the cards off in full, but to negotiate lower settlement payments I am pretty sure that the accounts have to be past due.
DDeborah, Jun, 2008
I'm not behind at this time,but I know I will not be able to pay for the next few months. My house is for sale and I would like to know if I can use the equity from sale to negiotate a lump sum payment.