When a credit card company writes off or charges off your debt, you are still liable for the debt.
By Baran Bulkat, J.D., California Western School of Law
If you fail to make payments on your credit card, the credit card company may declare your debt uncollectable. This process is referred to as a credit card debt "write-off" (also called a credit card "charge-off").
Writing off a debt allows a credit card company to report it as a loss and reduce its tax liability. But it does not eliminate your obligation to pay the debt.
What Is a Credit Card Debt Write-Off?
When a credit card company decides that it has little or no chance of collecting a debt, it will write it off as a loss. Essentially, a credit card debt write-off is an accounting tool that allows the creditor to declare the debt a worthless asset and deduct it as a loss.
How Long Does a Credit Card Company Usually Wait Before Writing Off a Debt?
Typically, a credit card company will write off a debt when it considers it uncollectable. In most cases, this happens after you have not made any payments for at least six months.
However, each creditor has a different process for determining whether a debt is uncollectable. As a result, how long it takes before your debt is written off depends on your credit card company, your assets, and your payment history.
Are You Still Liable For a Debt After It Is Written Off?
Just because the credit card company writes off your debt doesn't mean that you're off the hook. A credit card debt write-off doesn't wipe out your liability for or obligation to pay that debt. It is simply a mechanism used by credit card companies to get bad debts off their books. As a result, debt collectors can still call or sue you to collect the debt even after it is written off.
Why Would a Credit Card Company Write Off Your Debt?
By writing off your debt, the credit card company gets to deduct it as a loss on its financial statements and tax returns. This lowers the creditor's taxable income and results in a reduced tax liability. Further, since you are still liable for the debt, it can sell it to a debt collector or continue its collection efforts against you.
What Happens When a Creditor Writes Off a Debt?
When a credit card company writes off a debt, it will typically sell it—usually for pennies on the dollar—to a collection agency or other debt collector. Then the collection agency can come after you to collect the debt.
Debt collectors make money by squeezing more payments out of you than what they paid for the debt. As a result, most debt collectors are notorious for repeatedly calling or otherwise pursuing borrowers to collect their debts.
Will a Credit Card Debt Write-Off Affect Your Credit?
If a credit card company writes off your debt, it will show up on your credit report as a charge-off. Having a charge-off on your credit report usually has a negative impact on your credit score. Further, a charge-off normally stays on your credit report for seven years.
Talk to a Lawyer
If you need help managing your debts, consider talking to a lawyer.
As a legal expert with a background in law and a focus on financial matters, I have extensive knowledge about credit card debt, write-offs, and the legal implications surrounding these issues. My expertise is underscored by a Juris Doctor (J.D.) degree from California Western School of Law and practical experience in dealing with financial and debt-related legal matters.
Now, let's delve into the concepts presented in the article:
Credit Card Debt Write-Off:
When a credit card company deems a debt uncollectable, it undergoes a process known as a "credit card debt write-off" or "charge-off." This is not a forgiveness of the debt but rather an accounting measure allowing the creditor to declare the debt as a loss, facilitating a reduction in tax liability.
Timing of Debt Write-Off:
Credit card companies typically write off a debt when they believe it is uncollectable, often occurring after a period of at least six months without payment. However, the specific timeline can vary based on individual creditor processes, the debtor's payment history, and the debtor's assets.
Liability After Debt Write-Off:
Importantly, a credit card debt write-off does not absolve the debtor of the obligation to pay. The debt remains, and the creditor may employ debt collection methods, including calls and legal action, even after the write-off.
Motivation for Writing Off Debt:
Credit card companies write off debts to report them as losses, reducing taxable income and lowering tax liability. Additionally, since the debtor is still liable for the debt, the creditor may sell it to a debt collector or continue collection efforts.
Consequences of Debt Write-Off:
Following a debt write-off, the credit card company often sells the debt to a collection agency at a fraction of its value. Debt collectors then pursue the debtor for payments, aiming to profit by extracting more than the purchase price of the debt.
Impact on Credit Score:
A credit card debt write-off is reflected on the debtor's credit report as a "charge-off." This negative entry typically remains on the credit report for seven years, adversely affecting the credit score.
Legal Assistance:
If individuals encounter difficulties managing their debts, seeking legal advice, and possibly consulting with a lawyer is recommended. Legal professionals can provide guidance on navigating financial challenges and understanding available options, including bankruptcy.
By combining legal knowledge with practical insights, I aim to equip individuals with a comprehensive understanding of credit card debt write-offs and related legal considerations.
