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What does it mean if my debt is ‘charged off?

Posted at 10:49 AM, Mar 02, 2018

This article is written by Peters and Associates

 

A “charge off” is a complicated and an often-misunderstood term used when discussing credit-card debt. The misconception is that when your debt is charged off, you no longer owe it, but that’s not the case. In fact, a charge off is an accounting term that describes internal processes for the credit-card company, and usually affects you and your debt in minor ways, if at all.

How does a charge off work?

At 180 days of unpaid debt

The credit card company is required by the IRS to remove your debt from its accounts-receivable records. This is because your debt is considered an asset to the company. After 180 days, the debt is considered “uncollectable” or “bad debt.” It is at this point that the company is allowed to use the bad debt as a deduction or expense when it file its business taxes.

After your debt is charged off

One of two things can happen: The company can escalate your debt internally and might sue you for the amount owed, or the company can sell your debt to a third-party collection agency. If at this point, under either circumstance, your debt isn’t properly paid, settled or discharged in bankruptcy, you can still owe the entire amount, plus late fees, penalties and interest, to either the original creditor or the third-party collection agency.

The statute of limitations passed, but you’re not in the clear

The statute of limitations in Nevada for debt collection is either four or six years from the date of the last payment, depending on the type of debt. Having that time period pass does not mean you’re exempt from being sued for the debt owed, though; it simply means you’ll have a defense should you be sued.

Many people think having the statute of limitations pass means that your debt is automatically forgiven, but that’s not the case. This is sometimes referred to as “zombie debt,” because even if it should be dead, it can come back in the form of collection calls or activity such as a lawsuit.

Being served a summons in Nevada

Being served notice of a civil lawsuit doesn’t work like we usually see on TV. In Nevada, no one has to touch you with summons papers or even leave them at your doorstep. They can simply put a notice in a newspaper. This is called Service by Publication, and it means that after the plaintiff has made a fair attempt to serve legal documents to the defendant in person without success, they can print your service announcement in a newspaper for four weeks. These announcements are often printed in Nevada Legal News. If you don’t respond to the court summons, you’ll be handed a default verdict against you, regardless of whether you know you’re being sued.

If you have a question you’d like to see answered by an attorney in a future issue, please write to questions@PandALawFirm.com or visit PandaLawFirm.com.

Please note: The information in this column is intended for general purposes only and is not to be considered legal or professional advice of any kind. You should seek advice that is specific to your problem before taking or refraining from any action and should not rely on the information in this column.