What is a Charge-Off and How Does It Affect You?
Richard Fonfrias, J.D.
Chicago's Financial Rescue & Bankruptcy Lawyer
Fonfrias Law Group, LLC
When a bank gives up trying to collect money you owe, it makes an accounting entry called a charge-off. This is when the bank removes your loan from its books.
When the lender charges off your loan, the lender sends a report to the credit bureaus. This is a negative scar on your credit history and acts as a red flag to other lenders that might consider extending credit to you or loaning you money. It stays on your credit report for seven years.
The charge-off, however, does not free you from the debt. You still owe the money and it might make it harder for you to repay the debt. This is because after a charge-off, a bank usually does one of three things:
1. It continues its efforts to collect the debt.
2. It hires a collection agency to collect the debt. Or
3. It sells the debt to a collection agency.
Now, you may fully intend to repay the loan, but your intent doesn't matter. The time when a loan is charged off is determined by the law and the lender. A credit card account, for example, is typically removed from the books when you do not make the minimum payments for six months.
Thirty-five percent of your credit score comes from your credit history. If you have any late payments, your score goes down. But, while charge-off hurts, your late payments have already done most of the damage to your credit score.
If you want to remove bad marks from your credit report, filing bankruptcy will erase charge-offs and help give you a fresh start.
Before you make any decisions about your finances, I encourage you to call me. I am an experienced Chicago BK lawyer who specializes in financial help for businesses and individuals including IRS debt help, foreclosure avoidance and bankruptcy. I'll give you the facts, look over your situation, and answer your questions. Then you'll be able to make an informed, intelligent decision. And I offer this information to you without charge. If you would like to speak in confidence to a bankruptcy attorney in the Chicago area, please give me a call.