October 22, 2014
Charged off debt does not mean the debt is forgiven or uncollectable
Many individuals contact my firm with confusion as to why they are being pursued for a debt that was charged off by the original creditor. Often times, the charged off debt for which they are being pursued is by a debt buyer who purchased the debt from the original creditor or another debt buyer. Just because a debt is charged off by the original creditor, this alone does not mean that the debt is extinguished or otherwise forgiven or uncollectable. When you have a loan or credit card balance and you are paying it as agreed, your account would be considered an asset to the creditor for accounting purposes. If you fail to make your payments as agreed, your account is less valuable as the likeliness of collectability declines. Federal regulations require creditors to charge off the debt at around 120-180 days after no payment has been collected. A charge off is simply an accounting term used to describe the removal of the debt from the “Assets” portion of a financial balance sheet of the original lender. In other words, they are no longer considering your debt to be an asset because you failed to pay. Once a debt is charged off, the creditor basically assumes you aren’t going to pay them voluntarily. This does not mean that they won’t hire a debt collector to pursue you for the debt or sell the debt to a debt buyer who in turn will attempt to the collect the debt from you.
Using the charged off date to determine the statute of limitations
If you know the charged off date for the debt, this is a good starting point to determine the beginning date for calculation of the statute of limitations. If the debt is a credit card, the debt became in default and never regained positive status around 180 days before the charge off date. Once you have determined when the debt became in default initially and never regained a positive status, you are then able to calculate the statute of limitations date from there. The statute of limitations for credit card debts in Georgia is generally six years. So, you would want to take the initial date of default and calculate six years from that debt.