Laws on Charging Off Credit Cards

Credit card companies sometimes "charge off," or list as a loss, credit card debt after the debtor defaults. Charging off credit card debts doesn't mean the creditor forgets about the debt; usually he sells it to a debt collection company, although he may just write it off during bankruptcy. Charge-offs negatively affect your credit for seven years, and debt collectors may continue to take action against you after the original creditor charges off the debt.

Charge Off and Bankruptcy

The Bankruptcy Act of 2005 gives creditors 60 days to charge off an account after a customer files for bankruptcy. If creditors do this, they give up their right to collect any money on the debt and write the debt off as a loss. Charging off accounts hurts the credit card companies profits since it loses the ability to collect part or all of the debt. Creditors do this if they expect the bankruptcy will eliminate the debt without requiring the debtor or his bankruptcy estate to pay back a significant portion.

Debt Collection

In most cases, if a company charges off a credit card, it simultaneously sells the account to a collections agency. Bankruptcy, as noted above, is an exception to this rule. Collections agencies can contact debtors or take legal action against them to collect the debt. Harassing the debtor or threatening her to collect the debt is against the law, however, and the debtor should contact the Federal Trade Commission if a debt collector engages in these practices.

Credit Report

If a credit card company charges off a credit card, the bad debt remains on the debtor's credit history for the next seven years. Credit bureaus cannot remove this information any earlier if it is accurate; however, if the debtor believes she does not owe the debt she may dispute it with the bureaus. Charge-offs and other negative credit information make it more difficult to obtain new credit, including renting an apartment.

Resolving Charged-Off Accounts

If you have several charged-off accounts, contact an attorney who specializes in consumer debt law. Your attorney can help you determine the best means of resolving the situation. If you decide to file for bankruptcy, your attorney can assist you with the paperwork, and if you want to settle your accounts he can help you negotiate a more favorable settlement than you might get on your own.