The Difference Between a Charge-Off & Default

The Difference Between a Charge-Off & Default
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A default on your loan or debt obligation happens when you miss a certain number of payments. Though it could happen by falling behind by just one payment, you can re-establish your credit by getting back on track with your payments. After a period of time the creditor usually closes and charges off your account. You still owe the money and face legal action for repayment of the loan.

Credit Card Default

You’ll receive notices after missing a payment on a credit card. The company might call you as a reminder that you’re in default on your debt. Notices and calls follow when you don’t pay month after month. Credit card companies charge off, or write off, your account if you fail to respond to requests for missed payments. Time limits vary among creditors and range from 60 to 120 days. Creditors often turn over your account to collection agencies, and they can be more aggressive about receiving payment, often using mail notices and repeated phone calls.

Auto Repossession

A default situation could immediately lead to a charge off. If you default on a car loan, the auto lender could make attempts to repossess your car. Like credit card firms, auto loan companies have different policies on taking action. You might think that once the company repossesses your car, you’re off the hook and only have a bad credit rating to worry about. However, lenders can still demand payment, based on what they can sell the car for and how much you owe on your loan agreement.

Student Loans

Defaults on a student loan occur between 270 and 330 days, depending on your type of payment agreement, according to Federal Student Aid. Lenders of government loans don't necessarily charge off your account for private collection agencies to use. The Internal Revenue Service and Department of Education can collect on student loans by taking any income tax refunds or taking up to 15 percent from your paycheck on a regular basis, according to the Nolo legal information site. The government can also siphon off payments from other federal benefits you receive to pay the loan.

Court Judgment

Creditors and lenders seek court action when you fail to make repayments after defaulting on a debt and your account has been charged off. Courts usually rule in favor of the creditor if you legally owe the money. You can often negotiate with a creditor for lower monthly payments when you first go into default on your debt. You can also negotiate with collection agencies after a charge has been written off and even after a court judgment has gone against you and in favor of a creditor, but it might be difficult. Creditors can seize your bank account or salary and take your property to settle the debt after a judgment. The sooner you can negotiate, the easier it will be to pay off your debt.