It is a common misconception that "charged off" debts are those upon which creditors have given up collection efforts. That is not the case. If a creditor charges off (or writes off) a debt, it is doing that for accounting purposes, not because it is forgiving the debt.

Debts usually get charged off about six (6) months after you default, and marks a transition in how the creditor is dealing with the outstanding balance that you owe. From there it will most likely refer it to a collection agency or sell it to a factor (a company that buys debt at a discount and then collects the debt for a profit).

Debts continue to be collectible despite what a credit report might say until a particular state's Statute of Limitations bars it from being collected in court. Then you have some defense against the collection of old debt.

Until then, the collectors will still call, and the lawyers can still file suit. Don't be lulled into a false sense of security.

If a creditor were truly to forgive the debt, you would have received a 1099 for debt forgiveness income because the IRS sees that as taxable! Not exactly good news!

If your debt situation goes beyond one or two creditors, you may need a solution to a bigger problem. If this is the case, then download my free book, Am I In Too Deep? A Guide to Knowing When You Need to File Bankruptcy in New Jersey to find out if bankruptcy might be the solution.

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Steven J. Richardson
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Bankruptcy, Collections, Student Loan, DUI and Traffic Court attorney in Woodbury, NJ.