Do You Have to Pay “Charged Off” and Other Old Debt?

If you’re in the process of cleaning up your credit score, you might have to clean up any old, charged-off debts from college or a time of your life when you may have not made the same financial decisions that you would today. You should know what a charged-off debt is and if you have any, how to deal with them. Some people believe that these debts are a relic from the past that they don’t have pay them anymore, but that’s not always the case.

Charged-off debt is a debt that money is owed to an individual or a company that goes past due and the company has essentially ‘given up’ on collecting the debt (or, at least that’s what they say.) After a company attempts to collect the debt repeatedly, they “write off” the debt as a loss to decrease their annual tax-burden. Essentially, they no longer consider the debt on of their assets and take the value as a tax deduction.

The company that you owe money to will likely report your debt to one of the three major credit bureaus so that it will be much more difficult for you to get loans or secure any form of credit in the future. A charged-off debt will remain on your credit report for up to 7 years, and you’re still required to pay the full amount. After a company charges off one of your debts, the amount of fees, penalties and interest that you have to pay will skyrocket. A debt that was originally $3,000 could go up to nearly $7,000 or $8,000, making it much more difficult to pay off than the original loan amount.

What happens with your specific loan will depend on the contract for the original loan or line of credit. Typically, even after the loan has been ‘charged off’, you are still bound to the contract that you agreed to and have to pay the loan. If you decide to try to pay off a charged-off debt, you’ll have to check the statute of limitations in your given state for the specific type of debt that you live in. Usually the statute of limitations is anywhere from 3 to 7 years depending on the state, and after that time period, the customer legally is no longer required to repay the debt. However, by signing any additional agreement, making a payment, or simply validating the debt, the period that begins the statute of limitations timeline could be restarted.

You shouldn’t depend on your debt hitting the statute of limitations to get out of paying for it, after all, you did agree to pay the debt, and you do owe the money. If you have an old debt or multiple old, bad debts that you would like to take care of, there’s a pretty straight forward process to follow. First, only contact one company at a time. Contact the first company and provide them an offer for the loan amount (which will typically anywhere from 30% to 80% on the dollar based on how long it’s been since you’ve paid the debt).

 If you come to an agreement, make sure to get an email or get the agreement in writing. You need to have proof that you have an agreement with the company and that you’re not just making a payment. There are plenty of instances of someone paying on a charged-off debt where they had a verbal agreement with a debt collector, then the company later went back and tried to collect the rest of the balance of the debt, pretending the agreement didn’t exist to begin with.

You shouldn’t give a debt collector electronic access to your checking account, and you shouldn’t give them post-dated checks, because they’ll clean out your account and take all of the money out of it, causing checks to bounce. Instead, send them money orders so that they won’t have any information that would allow them to take all of the money out of your account.

Companies might not always be too happy to come to an agreement right away, but if they’re not being reasonable or are verbally abusing you, hang up the phone. There’s no doubt that they’ll call back. Eventually, you’ll get to someone who’s reasonable, and can come to some sort of an agreement.