However, to understand your liability in case of a charged-off debt, you’ve got to understand what it actually means.
What do mean by a charged-off debt?
Any debt or asset that been charged off is struck off or removed from the balance sheet. Generally, debts that are more than 180 days past due get charged-off. In case, the borrower hasn’t made any payments during that time frame, then as per the accounting norms, it is very likely to remain like that in the days to come.
As a result, it loses the eligibility to continue as an asset on the books of the creditors. Hence, that debt would eventually be charged-off. However, the accounting norm practiced by the creditors to have your outstanding loan balance chargedoff does not imply in any way that you’ll no longer be held liable to pay back that borrowed sum to them.
Charged off debts and the concept of SOL
First of all, a SOL stands for statute of limitations. This is mainly followed by the respective states that provide a limit upto which debt collectors can approach the courts in order to get back the outstanding loan amount from their borrowers. Therefore, as you can see from this fact that a loan continues to be a financial liability of the borrowers until they pay that back.
Yes, the laws pertaining to SOL usually varies from one state to another and a lot of states don’t even allow the creditors to bring in any sort of lawsuits against their customers in relation to an open-ended account like credit card. The time limit that these creditors will have to honor ranges from three to six years. However, if you are are a resident of Rhode Island, then your debt collectors will be able to live their dreams because the SOL in this part of the country is 10 years.
Now, you must be on your toes since there are some debt collectors who’ll try their best to recover the loan money from you, even though the SOL has expired and that they have lost the ground to sue you in court for alleged payment default. They may try to do so by phone or mail.
Charged off credit accounts and your credit score
Unpaid charged-off accounts can be a real dampener as far as your credit score is concerned. This will actually cause trouble when you’ll want to buy some sort of big ticket item like a car or a house, take an apartment on rent or send in your job applications. Moreover, a lot of business houses get wary of loan applicants whose credit report shows a long history of unpaid credit accounts.
However, many of them would ignore those negative items, provided you’ve paid them off in due course of time, but then if you haven’t, then they might not approve you for any fresh lines of credit. Speaking about your charged-off accounts, then they’ll continue to show on your credit report for a period of seven years, as mentioned in the Fair Credit Reporting Act (FCRA).
The Act also mandates that all sorts of negative credit items be removed from a person’s credit report once they’ve survived their stipulated time-periods. Therefore, if you expect that the charged off accounts don’t have any adverse effect on you, then you’ll have to wait for this long in order to achieve so. However, if you can payoff your dues through a well-planned debt repayment plan, then you can hope to improve your credit score gradually over time.
What if you are asked to pay-up for a charged off debt?
If your debt collectors harass you for the repayment of a charged off account, then there are ways to deal with them with a heavy hand:
- Work with a consumer lawyer - It may happen that a debt collector has sent you a notice of debt lawsuit, then in that you should immediately consult a lawyer with a proven expertise in consumer laws so that you are represented well in the court. In order to find one such lawyer, you may look up on the National Association of Consumer Advocates’ website. Remember, if you lose the case and the debt collector wins the judgment in his favor, then he may have your wages garnished.
- Never ignore their intimidation - The idea of ignoring the phone calls or letters from the debt collectors is never a wise one. You may not come to know if the calls or letters sent to you were notices regarding the debtlawsuits brought against you till it is too late for you to act and recover. According to the law, you are entitled to adebt verification by the debt collectors by sending in a written request within a 30-day deadline after being first contact by them.
Don’t delay in taking appropriate actions about this because debt collectors can report any sort of negative item on your credit report and hurt your credit worthiness. This in turn may make it very difficult for you to qualify forany kind of mortgage or other types of loans, affordable insurance premiums or even jobs.
- Retain all the documents - There is actually no proper opinion as for how many days or even years shouldyou keep all your financial documents safe. You may either keep them as long as you keep your tax return papers or if you want, then you can keep them till the SOL on your loans have expired. Nevertheless, the fact is that you must keep all records of transactions and payments intact in case you need them to prove yourself innocent in a court of law when fighting a debt lawsuit.
Today's post is by Michelle.