Do Credit Card Companies Write Off Debt?

Credit card debt is a growing problem for many Americans With rising costs of living and stagnant wages, more people are relying on credit cards to cover basic expenses This often leads to mounting credit card balances that become increasingly difficult to pay off. When consumers can no longer afford their minimum payments, credit card companies may eventually “write off” the debt.

What Does It Mean When a Credit Card Company Writes Off Debt?

When a credit card company writes off debt, it removes the debt from its books and records it as a loss. The debt still legally exists, but the credit card company has given up actively trying to collect on it.

There are a few common reasons a credit card company may write off debt:

• The debtor files for bankruptcy Credit card debt is typically discharged or wiped out through the bankruptcy process. Once the bankruptcy is finalized the credit card company has no choice but to write off the debt.

• The debt is past the statute of limitations Every state has time limits, known as statutes of limitations, that dictate how long a creditor can legally sue a debtor to collect debt. Once a debt is past the statute of limitations creditors can no longer take legal action. At this point credit card companies often write off the debt as uncollectible.

• The debtor can’t be located: If a debtor moves without updating their contact information with creditors, it becomes very difficult for credit card companies to collect. After exhausting collection efforts, these debts are usually written off.

• The debtor is deceased: Debts of a deceased person typically can’t be collected from their estate unless they were a co-signer on another person’s account. Creditors have to write off these balances when the debtor dies.

• The debt amount is small: If the outstanding balance is very low, it often costs credit card companies more in time and resources to continue pursuing collection than the amount that could be recovered. So very small balances are commonly written off.

How Does Writing Off Debt Affect Consumers?

When a credit card company writes off debt, the account will usually be closed and noted as “charged off” on the debtor’s credit reports. This causes significant damage to the person’s credit score that can persist for up to 7 years.

However, it’s important to note that written off debt is still legally owed. Credit card companies can choose to sell charged off accounts to debt buyers and collection agencies. These third parties may aggressively pursue collection through calls, letters, lawsuits and other tactics.

Some benefits of having debt written off by the original creditor include:

• The account is closed so no further charges can be made.
• Interest and fees usually stop accumulating on the account.
• The creditor will stop their collection efforts and calls.
• Settlement may be easier with debt buyers than the original creditor.

On the downside, written off accounts continue to negatively impact credit for years. And people with written off debt are still vulnerable to collection harassment. Overall, credit card charge offs make it very difficult for consumers to get approved for financing or decent terms on loans.

Can Credit Card Debt Be Written Off Before Charge Off?

Technically, credit card companies can write off debt at any point when they believe the account has become uncollectible. However, creditors typically don’t immediately write off balances when borrowers initially fall behind on payments.

Instead, credit card companies will make efforts to work with struggling debtors in order to rehabilitate the account and continue collecting. This process often includes:

• Repayment plans: The creditor may offer reduced payment plans over 3-6 months to help catch up on the debt. Interest continues accumulating during this time.

• Settlement offers: A one-time lump sum payment that’s less than the full balance may be accepted to settle the account. Remaining debt is written off.

• Hardship programs: Borrowers with long-term hardships may qualify for temporarily lowered interest rates or waived fees to reduce monthly payments.

If the account can’t be brought current through these options, then the credit card company will charge off the debt and write it off. Charge off typically happens at 180 days past due, but policies can vary between creditors.

Can Written Off Credit Card Debt Be Revived?

Once an account has been charged off, the creditor writes it off and closes the account permanently. The balance can’t go back to “active” status with the original credit card company.

However, if the charged off debt gets sold to a debt buyer, the new debt owner may restart collection efforts and sue for payment. Debt buyers often revive old debts that were previously written off so they can profit from collection.

Even debts beyond the statute of limitations that are no longer legally enforceable can be troublesome if revived by an unscrupulous debt collector. Although you can no longer be sued, you could still receive threatening calls insisting payment is required.

To avoid issues, continue communicating with any new creditors or debt collectors that contact you attempting to collect on a charged off credit card account. Don’t ignore notices regarding sold debt – respond promptly and assert your rights under federal and state debt collection laws.

How to Deal with Credit Card Debt Before Charge Off

If you’re struggling to pay credit card bills, take action before your accounts get charged off and written off. Contact your credit card companies as soon as you start falling behind and explain your situation.

Ask if they have hardship programs or other options to help temporarily reduce your monthly payments and avoid charge off. Some potential solutions include:

• Requesting lower interest rates
• Paying only the minimum amount due
• Setting up temporarily reduced payments
• Consolidating debt with a balance transfer or debt consolidation loan

You can also contact a reputable nonprofit credit counseling agency for free help negotiating with credit card companies. Counselors can often get concessions from creditors to minimize damage to your credit if you act quickly.

Options After Credit Card Charge Off

Once charge off has already happened, you have a few options:

• Pay in full: Contact the debt buyer or collection agency and pay the full outstanding balance if you have the means. This will stop collections and begin rebuilding your credit score.

• Attempt to settle: Offer a lump sum payment that’s less than the full amount to satisfy the debt. Any remaining balance will be written off. Get the settlement offer terms in writing before paying.

• Declare bankruptcy: Filing Chapter 7 or Chapter 13 bankruptcy will eliminate credit card debts, providing you a fresh start. But it will severely damage credit for around 10 years.

• Wait out the statute of limitations: If the debt is past the time limit for legal action in your state, the collector can’t sue you. But you’ll still get collection calls and credit damage.

• Assert your rights: Under consumer protection laws like the FDCPA, you have rights related to communication methods, frequency, and verification of debts. Educate yourself and don’t tolerate illegal collection practices. Send cease and desist letters if needed.

Can I Get Credit Card Debt Written Off Without Charge Off?

It’s extremely difficult to get credit card companies to write off debt before they’ve charged it off – but not necessarily impossible.

One way is to prove the debt is incorrect. If you can provide valid evidence the credit card company is attempting to collect an invalid amount, they may be willing to write it off entirely and close the account. Dispute errors as soon as they appear on statements.

You may also be able to negotiate credit card debt write off in cases of severe hardship where you have no assets or income. The creditor sees no possibility of ever collecting, so they may agree to write off the balance if you provide documentation of your situation. These cases are rare, but can happen.

Otherwise, credit card lenders will almost always go through normal collections then charge off before ever agreeing to write off debt voluntarily. Your best chance is contacting them quickly when you default and convincing them to work with you to rehabilitate the account.

The Bottom Line

Having credit card debt written off by the original creditor can provide some relief from collection harassment and fees. But it still causes significant damage to your credit that can take years to fully recover from. Also, the debt can be sold to aggressive collectors who won’t hesitate to pursue payment.

Before debts reach charge off status, do everything possible to work with credit card companies and avoid defaulting on your accounts. If you’ve already been charged off, deal directly with any debt buyers you’re referred to and be aware of your rights. With patience, perseverance and a debt repayment plan, you can eventually put the situation behind you. But written off credit card debt isn’t a quick fix or an easy way out.