What to Do When Your Credit Card Debt Has Been Charged Off
by JennaOne of our readers, Ashok, sent us this question:
Sir, I am a credit card defaulter. I changed my address and likelihood of bank finding me is almost zero. But I feel guilty to do this and want to settle my account with bank, However, i am not in a condition to pay the full amount, but would like to get my name written off from bank’s defaulter list. How do I settle my account with bank? What kind of rebate i can expect? Is there any agency to help me out in this?
Thanks for your question Ashok!
You are wise to want to settle the account out for several reasons:
- Credit card companies employ entire departments of people they call “skip trace”. Which basically means when someone skips out, they harass everyone you know until they find you.
- The credit card company will keep reporting the debt to all three credit bureaus until they write it off. When they write it off, they will sell your debt to a new collection company, who will also report your debt to all three credit bureaus. When they give up on trying to find you, they will simply sell your debt to another company.
- If anyone ever does catch up to you, you can expect them to sue you, and garnish your wages.
Now, assuming that they do not ever find you, you will still have to deal with the damage that delinquent account is doing to your credit score. So, you are exactly right to want to make good on the debt. It will begin the process of repairing your credit.
There is one thing you need to be aware of before you begin. Now, I do not know how old your debt is, but I can tell you that if your credit card company has written off your debt already, calling them will “re-open” it, and they will begin collections all over again. This could actually cause you to have multiple negative accounts on your credit report over the same debt - so do a couple of things first.
If you want to make good on your debt what you have to do is pull all three of your credit reports, and find out who currently owns your debt. From that point, you have two options:
- Call the collection company who owns your debt now, and offer a settlement for a reduced amount.
- Send a certified letter to the collection company that currently owns the debt telling them that you refuse to deal with anyone but the original owner of the account (the bank that issued the card.) This is your right by law.
There are pros and cons to both of these:
Collection companies are used to making settlements, and they will likely settle for less than your original bank will. However, they may have tacked on quite a few additional fees to your account that would not be charged to you if you deal directly with the bank that gave you the card.
The best way to know if fees have been added is to look at your credit report. Look at the amount your bank charged off, and then compare it to the amount the new collection company says you owe.
Settling the debt with the original bank will look better on your credit score because it will show a paid charge off. If you pay your original bank you can wait a few months, and challenge any negative information on your reports that resulted from the collection companies (not the original bank.)
As far as what kind of a settlement you can expect: it depends on how much you are willing to negotiate. In situations like yours, you should easily be able to cut the total by 50% if you are dealing with a collection company. If you deal with the original bank, upwards of 30% is a reasonable expectation.
As far as organizations that can help, yes, you will get the help you need from a credit counseling agency. Just be careful which one you choose, because not all of them do a good job. They will negotiate with your creditors on your behalf, and get the account settled for you.
For more information on how to choose a credit counseling agency, you can check out these articles:
- How to Tell if a Credit Counseling Service is Legit
- Due Diligence When Choosing a Consumer Credit Counseling Service
Have a question for us? Leave a comment below!
Keep Reading:
- Does Having A Checking or Savings Account Affect Your Credit Score?
- How Does Paying Off A Credit Card Affect Your Credit Score?
- Can You Raise Your Credit Score 100 Points in 6 Months?
August 18th, 2008 at 7:22 am
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[...] Credit Card answers another FAQ about credit cards in What to Do When Your Credit Card Debt Has Been Charged Off? posted at Ask Mr Credit Card. Excellent advice for how to handle old credit card [...]
September 10th, 2008 at 12:13 am
You said,
Call the collection company who owns your debt now, and offer a settlement for a reduced amount.
For a person who had to deal with one of the biggest unethical, uncaring SOB collection agencies in the country, you really need to tell people that if they settle on a lesser amount of the debt they owe, they will have to pay the balance in their income tax for that year. But a person really needs to check with their tax accountant/preparer to see how much tax they would have to pay on that balance and if it is beneficial for them to do so. Depending on how large the debt is versus paying half and having to pay taxes on the other half. Does it balance out and when it comes time to pay the taxes, will you be able to? Oh, and the collection agency will not tell you that if you settle for a lesser amount, the balance will be treated as income and you have to pay taxes on that unpaid balance. Collection agencies are ruthless people who shouldn’t be allowed to exist!!!!
I had to deal with the company I dealt with for over 4-5 years, with them calling me, harrassing me at home and work more than 5 times a week, sometimes several times a day from different employees leaving message on my home phone, threatening to sue me, calling my mother for my whereabouts, having to get a government attorney involved in telling them to stop calling me at work on government cell phones, etc. I probably have a good case to sue them, but don’t have the time and don’t want any more headaches in having to deal with them. I would never settle with them the first five years, but when it got down to around $3,000, I finally settled for half of that. When I came into some money about a year ago, I sent them a check through a debt management company I was dealing with for all my debts and they wouldn’t take it. They had the check in their hot little hands, but said because it came through the debt management company, they couldn’t take it. So I took the check back and told them where they could go and continued to make the monthly payments through the debt management company. Funny how they would take the monthly payments, cash the check, etc, but wouldn’t take the final payoff check. Owe, and I am in another class action law suite because of the debt management company I used and will probably get back half of what I had to pay the collection agency.
September 17th, 2008 at 5:01 pm
Dear Sir,
I have 3 credit cards and today they were charge offs. I have called each company and none of them would talk to me. Two of them told me this account was being sold and I would have to talk with them. I would like to deal with the original creditor but since none of them will visit with me, I cannot negotiate a settlement. What should I do? thank you, Lori
November 9th, 2008 at 6:04 pm
Do Not settle with the Credit Card company. Stay on the down low. The problem is that Joe Biden and his cronies repealed Chapter 7 of the bankruptcy law which allowed you to have ALL your debt discharged. Now many people cannot get their debt discharged. If you settle for pennies on the dollar the government will treat the difference as income. You are better off skipping on the debt.
December 7th, 2008 at 2:18 pm
Dear Sir
I had credit cards , because of financial position iam not able to pay the banks, now all the collection agencies coming and torturing my parents when iam not in my residence , so please tell me what should i do to stop those tortures from collection agencies, is there any way to complaint about thse agencies
December 10th, 2008 at 10:40 pm
When it was said:
“refuse to deal with anyone but the original owner of the account (the bank that issued the card.) This is your right by law.”
What Law exactly says that so when I write my letter I can include it?
I too tried to call my credit card company and they said there was nothing they could do and I would have to contact the Collector.
The Collector told me he had power of attorney over the account also.
Please help I am running out of time.