Dear Debt Adviser: If a debt is charged off, am I responsible for paying off that debt? - Jenny
Dear Jenny: Yes, you must pay. But don't feel bad about not knowing this, because many people are confused on this point. After all, if it's charged off, it sure sounds like it went away, right? And it did -- just not away from you.
When a debt or any asset is charged off, it is taken off a balance sheet. A debt that has been charged off is typically more than 180 days past due. If no payment has been made in that amount of time, the accounting rule is that it can't be carried on the books as a current asset. Therefore, the debt is charged off. But the accounting move by the creditor to charge off the balance due in no way affects your responsibility to pay what is owed.
In the most basic terms, a debt is owed until it is paid. However, state laws provide a statute of limitations for collecting a debt using the courts. The laws vary, but most states do not allow creditors to sue in court to collect on an open-ended account, such as a credit-card account, after three to six years. (Unless you live in my home state of Rhode Island -- a debt collector's dream -- with a statute of limitations of 10 years.)
Be aware that some collectors will still try to collect by phone and mail, even if they don't have the option of suing in court.
Besides damaging your credit score, an unpaid charge-off can really hurt you when you want to make a major purchase using credit, rent an apartment or apply for a job. Most businesses are leery of someone with any long-term, unpaid credit accounts.
Your charged-off accounts will remain on your credit reports for seven years and then must be removed under the Fair Credit Reporting Act. So, if you decide not to pay, you will have to wait that long for the charge-offs to no longer affect you.