Write-offs or Charge-offs

In short, yes.

When you owe a bank/credit card money, it sits on their books as an asset and reflects in the company's total equity position. When a debt becomes doubtful and the creditor deems the liklihood of getting paid pack is slim, they have this thing called the chargeoff.

Accounting-wise, it doesn't make sense to keep a bad debt as an asset -- it is really just an imaginary number that the bank won't ever be able to liquidate. Leaving bad debt on the books just inflates the company's total equity and makes it "appear" to be worth more than it really is. This can also cause an economic collapse, and so the FDIC usually requires banks to chargeoff their account when they are 90-120 days past due.

"Chargeoff" is just an accounting term meaning the account balance has been charged against the company's loss reserve in order to discount their total assets. You owe it to them still, and they can collect on it. Usually once an account has been charged off, the creditor will sell your account to a collection agency.

For more about chargeoffs, see http://www.debtconsolidationcare.com/settlement/chargedoffdebt.html

I am hearing conflicting information on this issue. On one hand, I am hearing that the FDIC requires banks to charge off an account after 120 days. I am also hearing that once the account is charged off, it is illegal for a debt collector to collect anything.
The reason that collecting on charge offs is illegal, is that original creditor took the bad debts as a loss, when they filed their income tax return from the IRS.

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I think this issue is very complicated. I will research it more.

I am not interested in settling.. I just want to know what rights CA have after an account has been charged off.

Here is a really good answer I found about the ability for a CA to sue you for charged off accounts:

If a lawyer says he has taken over a charged off credit card debt and will sue you unless he can collect should you pay him?

In: [URL="http://wiki.answers.com/Q/FAQ/2104"]Debt Collection[/URL]


Debt-Collecting Lawyer


Good question. The answer is yes, he can file suit against you. However, based on his statement in your question that he has taken over a charged off credit card debt, what he is really saying is that he or the firm he works for are junk debt buyers and he has purchased the rights to collect your alleged debt from the original creditor for pennies on the dollar. If he genuinely represents the original creditor, then you need to hire yourself an attorney.
Unfortunately, he may falsely tell you that he represents the original creditor. You need to find out. One way to determine this is if and/or when he files suit against you, he will list himself/his firm or the original creditor as the Plaintiff. If it's NOT the original creditor, this means he is a junk debt (stressed debt) buyer. If he or his firm has purchased the "rights to debt collection", then you stand a much better chance of defending yourself. But I recommend that you still hire a Lawyer. Also, if he misrepresents himself as working for the original creditor and he does not, he is in violation of the Fair Debt Collection Practices Act.

A "charge off" does not mean the debt is not valid. It means the credit card issuer, or original creditor, has written it off their books for tax purposes as noncollectable. They receive insurance payments and tax credits on the charge off. That account may then be purchased for pennies on the dollar by a third party who will attempt to collect the debt.
There are Attorneys and Law Firms (Mann-Bracken) who specialize in collection lawsuits to recover payment in full but their success is limited against the informed. If you do nothing a default judgment will be made to the Lawyer. There are many things these Lawyers do not want you to know! Read further! If you fail to respond/answer the complaint/summons, and a default judgment is won by the third party collector, they will initiate action(s) to collect. Some of the ways for them to collect are, garnishment of wages and/or bank accounts. Liens against real estate, requests to have non-exempt assets liquidated. All states have a set of exemptions to protect specific amounts of the defendants property.

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There is something regarding WHO buys the debt after a charge off. I am reading that if you get sued, you can tell who is listed as the plaintiff. If its the CA or original creditor. If its the original creditor, then yes, but if they just purchased the rights to the debt, I am told you can fight it. And here is why..

So I guess I will wait to get sued, and then have find out about the opposing party.


Pursuant to the Fair Debt Collection Practices Act, (? 803.4) these Lawyers or Debt collection agencies are NOT the original creditors. The Lawyer must establish a creditor/debtor relationship with you and establish a course of business dealings between you and he in order to claim remedy.

The Lawyer must also provide viable validation of the alleged debt beyond his own records. Since the Lawyer is not and does not represent the original creditor, the records they keep are hearsay. This includes affidavits since said records or documents upon which the affiant or the Lawyer relied is not the original creditors or not admitted into evidence or attached to the complaint or affidavit. This means he must provide the original creditors complete records of the alleged debt. As a rule, he will not be able to do this.

He will also claim "breech of contract". In order to sustain the burden of proof for a Breach of Contract the Lawyer must attach a copy of his contract with you (not the original creditors), with your signature on it, to the complaint. If he does not, he fails to establish a contractual relationship between you. Additionally, if implied, it must be established that you, was sent a statement and that you expressly consented to the statement by failing to object. (meaning he sent you letters that you did not reply to) There needs to be a copy of a statement and proof of mailing (registered mail) to establish a presumption of no objection. For an account to exist between the Lawyer and you there must be proof of an agreement between you that a certain balance is correct and due and an express or implicit promise to pay this balance exists. There must be evidence that the parties agreed on any balance due and owing.

Most damaging is that according to the doctrinal law, Volenti Non Fit Injuria, a legal principle that states that one who knowingly and voluntarily consents to and takes on a risk cannot ask for compensation for the damage or injury resulting from it, you cannot claim remedy for an injury which you inflicted upon yourself as the Lawyer has done by willingly purchasing debt on an account that was defaulted and deemed non collectible by the original creditor. Based on this, most cases are dismissed once it is established that the Lawyer is suing on his own behalf (since he purchased the debt collection rights to your account) and not that of the original creditor which is what HE wants you to believe!

So I think its more complicated than just using the word charge off to mean you are off the hook. I can understand what you are saying, but there is also some validity to how an account can be collected onced charged off.

good info. marking for later use.

I am not sure who wrote the information that you found, but I wonder if they have ever successfully used those arguments in court?

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Well all defenses have their level of strength, so to use them with any effectiveness, I would have research actual cases won and how. I am doing that now, and will post what I find out.

But one thing is for sure.. The charge off designation is significant. Its not the end all be all off the hook for the debtor sort of thing, but it is a step in that direction.

I know that a lot of the contracts I signed I did not personally guarantee. When Bank of America took over some of my accounts, they also changed the contracts. I think the contract is a fair one to argue in court, if your contract gets sold to a 3rd party, and that party has the burden of proof to prove what you owe and if its even valid.


Nothing is black and white. And judges can be sympathetic judging by how the case is heard. There is something also called the "unconscionable clause" which is when one party acts so horrendously that a normal and decent person would be shocked and not go along with the contract. What Advanta did comes to my mind, because its unconscionable for an interest rate to increase 2% to 50% for no reason, or no wrongdoing on the part of the debtor. I can imagine that payments going form 200 to $1000, like mind did, (and I paid it to protect my credit rating) would be a defense.

Thats all I am saying.. In general, a 3rd party is further removed, and its harder for them to prove certain things. Something being charged off, is going in that direction, and my only point was, yes, this does matter.

I am reasearching the court cases now, and I will let you know what I find out.

Thanks so much for your very informative and thoughtful response.

I am not sure how I am going to go about my situation. The more I research the more I am thinking that my situation does not fit most of the comments on this board because I am a business and have business debt that is unsecured in nature. My lenders significantly restructured their programs, leading to my demise, if I do not restructure my debt, so I am using different strategies.

From the case law I am reviewing, third party contracts are not as enforceable, due to the whole "performance" issue. When someone assigns a mortgage, that is different story because that is a performing contract. when someon buys a charged off debt, that is synomomous with buying a house burnt down by a fire, and then suing for damages because the house is not burnt down. You can't claim damages in this regard.

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There is also another issue with assignment. There are certain rules that dictate what is a valid assignment. A lot of the times, 3rd party debt collectors change the terms, and rarely do they disclose this to the original creditor at the time of assignment.

"If there were terms of an assignment from the creditor to the collector, the customer was not a party to those terms, nor was he ever notified of the terms (if any), and most importantly, the customer of the original creditor had already calculated and assumed a certain number of risks (just like in any contract or agreement). When the assignment took place, that number and those types of risks changed and the customer was never given a fair opportunity to agree to the new risks. It was prejudicial to say the least. I have never seen an assignment agreement with any terms and it follows that I have never seen any customer included as a party to any assignment agreement. The assignment clause in the credit agreement is not sufficient to establish a new obligation with a un-named third party. The assignment clause is merely enough to allow the assignment, and thereby eliminate or abrogate any rights the creditor may have had before the purported assignment. While the assignment may be valid, because there are no terms and because there was no disclosure to the customer and because the customer never consented knowingly, and voluntarily to unknown or undisclosed terms, the collection of the debt cannot be enforced or maintained. The simple explanation, the assignment clause is enough to defeat the collection possibilities for both the creditor and debt collector. "