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What to Do When Your Credit Card Debt Has Been Charged Off


One 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:

  1. 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.
  2. 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.
  3. 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:

  1. Call the collection company who owns your debt now, and offer a settlement for a reduced amount.
  2. 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:

Have a question for us? Leave a comment below!

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Jacue Walton
September 10, 2008 @ 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 17, 2008 @ 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

Jack Deadbeat
November 9, 2008 @ 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 7, 2008 @ 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 10, 2008 @ 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.

Wayne Martin
August 7, 2009 @ 8:39 pm

Can you pleae let me know which law gives me the right to go back to the original creditor? I believe I am in the process of being sued ( a lady claimng to be a processor came to my door last week to verify my home address, I guess?) I have contacteds the last know debt collector attorney (their last letter is six months old) asking to confirm they still have my debt and asking if we can work something out. To date, there has been no reply. By the way, I live in Texas.

I would love to be able to go back to the original creditor (HSBC) and get this thng settled.

Please let me know.


Wayne Martin

September 29, 2009 @ 5:35 pm

I am being sued by an attorney supposedly for Capital One, an account I do not remember. My credit report shows the debt charged off, so I assume this attorney bought it? If so, can he legally collect when I have no contract with him? I asked for verification of the debt and all he sent me was the company of the debt, the account number and when it became delinquent. I asked for the original signed contract, but didn’t get it. Can he legally sue for this?

December 11, 2009 @ 5:34 pm

If a account has been charged off since September 2008, and it it turned over to a collection agency, why do I still have to pay it?

Sue fidel
July 7, 2010 @ 11:39 am

Hello, I am in default of a Chase card and it has now gone to a collections agency. I found a note on my door the other day from the county Sheriff looking to serve me with some sort of papers from the debt collector. I called the collector and tried to make some kind of deal with them and they told me they would not accept my offer. Unfortunetly I probably gave them to much information and didn’t realize it at the time, like the name of my bank.
They said they have no other option but to sue me.. They are saying that I owe them $14,000.00, but Chase had given me an amount to settle of $6,000.00 at one time. Due to not having any money at that time, I couldn’t afford to pay them.

What should I do?? Do i need to get a lawyer Involved, which i have no money for that either..
I should mention about 10 years, due to a divorce I had to claim bankruptcy, is this an option for me again?

Please any info you can offer will be greatly appreciated…

October 18, 2010 @ 11:26 pm

Have 1 credit default loan and 2 unsecured credit loans,
the bank sold them to a collection agency. Have not heard
anything from the agency for more than 5 months. Only
income is retired military pay depositied into checking
accnt. Why has the debt collector not contacted me as
the bank gave them the correct address and am presently
living overseas and the debt collector has my overseas

September 11, 2012 @ 6:23 am


Which is the best company to deal and paid my old credit card bills, the collection agency? or the original bank? who issued the credit card. I wanted to pay my credit card but I am confused, which is higher, the agency or the original bank?

February 15, 2013 @ 2:33 pm

What can I do about a charged off debt being sold to another company?

February 15, 2013 @ 2:46 pm

Who do I pay the original company or the collection company

sam stad
April 9, 2013 @ 9:28 pm

Honestly, whenever I read this types of articles I wonder if they really know what they are talking about.

If you owe and the original creditor charged the debt off and most likely sold it to a Collection Agency. So if that is the case the original creditor no longer owns the debt but yet the put it on your credit report even though they got some money off your debt, in addition to getting tax breaks due to loss.

The other collection agencies just play round robin with your debt simply to keep that debt on your credit. Then you have a statue of limitation which means most states won’t allow collection agencies to sue you if the debt is 4+ years old. After 7 years derogatory credit should come off.

Let’s be real on this “ethical” perspective. All of the banks, collection agencies, credit card companies engage in unethical practices every single day. If you owe you should pay your bills but what happened in this country was all due to banks and their unethical practices, however, they received bailout from the government which means us Taxpayers. We don’t get bailouts, they hound us and try to destroy our credit and there is no relief or fixing it anytime soon.

So if your debt is several years old most likely you will have that exact same debt several times on your credit report, so paying them won’t fix anything and most likely they won’t do anything if you “settle” your debt. That bad credit still remains except with the whoever you settled with. So if you debt is 4 or 5 years old. Why would you pay it? Most likely you didn’t get credit during that time what is waiting another 2 or 3 years. Also paying it now will just start your clock over and affect your credit more negative.

At this point I don’t see why paying an old bill is unethical. 1. The bank “sold” your debt which means they made money 2. they received a tax break. When I was in peril and try to work with these banks they played hardball it wasn’t until they realized I was completely tapped out and couldn’t and wasn’t paying the bills for some months, that they wanted to negotiated. Why didn’t you work with me when I asked, all this could have been settled differently from the very start. Of course they don’t have to do anything but I would think if you are willing to sell the debt for pennies on the dollar to a collection agency, why couldn’t you work with me??? So forget “ethics” you need to do what make sense to you. But keep in mind paying your old debt won’t fix your credit, you will still face the same issues and you will have to go through constant disputes to get it fixed. Might as well wait the 7 years.

July 3, 2013 @ 9:04 am

A friend of mine whose last address in the u.s. was Ohio, skipped out on her credit cards and relocated to another country (the amount was probably about $25,000). This was 13 years ago. If she wants to return to the U.S. via New York, can she be arrested at the airport? As she has dual citizenship, should she use our non-American passport.

I heard the statute of limitations in Ohio was 15 years (however, the debt was run up while she was in New Jersey and married). Would they have jurisdiction to pull someone off an airplane in NY? (Also, I am not sure, but they may have gone after her ex husband for the debt. Supposedly he was freed from responsibility as part of the divorce settlement, but I heard a rumor that they went after him. Is it even possible they could go after an ex-spouse)

joanne johnson
September 8, 2013 @ 5:08 pm

Under Heintz v. Jenkins (94-367), 514 U.S. 291 (1995)<SUPREME COURT ruling, a 3rd party collection agency does NOT have any legal right to harass you and/or call you and/or send you any collection notice because under the case law quoted herein, the 3rd party collection agency was NEVER a party to the original contract/agreement, thus they have NO CLAIM ON YOU!! even if they bought the 'charged off' debt from the original creditor. That's their problem if they wanted to purchase a debt that had NO VALUE-Defined under Black's Law book.

So tell them next time that 3rd party creditor contacts you with a nasty call or a nasty collection letter.


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