CHARGE-OFFS

How Often Should I Be Checking My Credit Report?

There are many entries on a credit report that can be misleading or confusing. Checking your credit at least annually is a must. I recommend checking it at least monthly. There are several cell phone apps one can use to monitor credit. These apps can be very useful in making sure your credit score is where it should be. Everyone should be looking for unusual credit reporting entries such as charge-offs, inaccurate delinquencies or reporting, new credit accounts that you are not aware of, or any other unusual activity. Anything you are unsure about should be reported to the credit bureaus and disputed in writing.?

What Is a Charge-Off and Should I Be Concerned If I See a Charge-Off on My Credit?

There is a large misconception about charge-offs. Many people I speak with about bankruptcy and debt issues tell me they have a charge-off but not to worry because it’s now uncollectable or they haven’t heard from this particular creditor in many months or years. However, not worrying about a charge-off is a big mistake. A charge-off happens when a creditor has determined that it can no longer collect from you. This happens when the creditor has made significant efforts to collect from you, but for whatever reason, has been unable to do so. After a while, the creditor must do something with the debt, so they charge it off. This means the creditor has written the debt off from its books or accounting. Once written off, the creditor will usually use the charge-off as a tax deduction. Then the creditor will sell the debt for pennies on the dollar to a collection company.

These companies assume the debt at its face value. This means the new collection company may now attempt to collect on the debt from you for the full value of what you owe. Do not ever discount a charge-off as uncollectable debt. Eventually, the debt will land with a creditor who will take steps to further collection efforts by filing a lawsuit against you. By then, the debt will likely have risen in interest, fees, penalties, legal fees and other costs the creditors will tack onto the total amount of debt owed. Therefore, if you see a charge-off on your credit, you need to take steps to settle the debt, set up a payment plan, or find some way to satisfy the debt with the creditor. If your debt has gotten to the point where bankruptcy might be an option, you can look into filing.

Does Chapter 7 or Chapter 13 Discharge a Charge-Off?

Filing bankruptcy can help you get rid of a charge-off. We need to determine what kind of debt it is to know whether a bankruptcy can completely discharge the charge-off. Unsecured debt of any kind is usually dischargeable in bankruptcy. If the debt was tied to a credit card, personal loan, medical debt, or other unsecured debt, you will most likely be able to discharge it in bankruptcy under any chapter. If the debt originated as a secured debt, which means the debt was tied to some form of collateral, then the discharge will still help you, but you will need to take an extra step.

The form of collateral means any type of property you own, which was pledged as collateral for the loan. For example, let’s say you took out a HELOC (home equity line of credit) on your home but you fell behind on the payments and eventually stopped making the monthly payments. Over time, the lender was unable to collect from you. Eventually, the credit lender has two options. 1, the lender could look to foreclose on the home. But, if there’s not enough equity to satisfy the first mortgage, then step 2 would be a charge-off. If you file bankruptcy, the discharge would wipe out the debt against you personally, but the charged-off loan would remain attached to your home. To release the loan from your home, you would have to either pay it off, settle the debt for a lump sum payment, refinance so you could pull equity out to pay it off, or file a chapter 13 and pay the debt off in a chapter 13 payment plan. There may be additional options in paying it off for less than you owe in chapter 13 as well. However, keep in mind that a charge-off does not mean that the debt simply went away. It will come back, and it likely will be much worse than before. If you have debt problems or are thinking about bankruptcy or debt settlement, please give me a call today at 623-777-4760 or visit us at www.gaudiosilaw.com.