If a payment is well past due, the creditor may mark it down as a “charge off,” indicating they don’t expect it to be paid off. This reduces their tax liability. However, this doesn’t mean the borrower isn’t still responsible for the debt. If you have an unpaid charge-off, it will harm your credit score. If you receive a notice of a charge-off, confirm that it is correct. If it isn’t, start with a written challenge and proceed to small claims court if necessary. Note that there is a statute of limitations for debts. But if you are struggling to pay off a debt, you may be able to work out a payment plan with the creditor and avoid a charge-off entirely.
Key Takeaways:
- A charged off debt is when the debt is gone from the balance.
- This will reflect poorly on your credit score as payment history is a lot of the FICO score.
- You may receive a 1099 at tax time reflecting the charged off amount as income.
“When a debt is charged off, it’s taken off the creditor’s balance sheet.”
Read more: https://www.bankrate.com/personal-finance/debt/charged-off-as-bad-debt/
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