CHARGED OFF” DOES NOT MEAN YOU’RE OFF THE HOOK”

Posted by Tom Martino at 8:58 am 77 Comments Print

A lot of people make the mistake of believing that once a creditor “charges off a debt”, they are off the hook when it comes to collection efforts.  Wrong!

First … let’s talk about what “charging off” means.  When a biz charges off a debt, it means they have given up trying to collect it and they are going to take the “write-off” on their taxes to get a deduction.  (You see, bad debt is a deduction if the biz counted the anticipated revenue on their books in an accrual system of accounting.  The deduction “undoes” the revenue they previously reported.)

So what happens if a biz writes off your debt?  Does it mean you don’t owe the money?  No. You still owe the money – assuming it was a legit debt to begin with.  Writing it off simply means that the creditor has decided to cease collection efforts and take the deduction.  It does not let you off the hook.

In other words … if a new accountant is hired and decides to pursue old debt, he can do so. Or if the biz sells the old debt to a third-party – they can try to collect it.

The bottom line is this:  If you owed the money before it was written off, you owe it after it is written off.  But keep in mind that in Colorado creditors lose their ability to take you to court to get a judgment after 6-years – that is called the “Statute of Limitations” for debt collection.

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