What happens after a debt is charged off

When original lender gives up, collection efforts continue

Credit Smart
Credit Smart columnist Susan C. Keating
Susan C. Keating is the president and chief executive officer of the National Foundation for Credit Counseling. Prior to joining the NFCC, Keating spent 29 years in financial services. She was the highest ranking female CEO of a U.S. bank holding company, serving as president and chief executive of Allfirst Financial Inc., the largest U.S. holding of AIB Group. She currently serves on Bank of America's National Consumer Advisory Council and is a board member of the Council on Accreditation. Keating also participates in the Financial Regulation Reform Collaborative, a nonpartisan group committed to finding solutions for reforming financial services regulation.

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Dear Credit Smart,
The bank has written off my credit card debt. How long after can a collection agency can sue me? Can they get a judgment? What is my defense to stop the garnishment? – Raja


Dear Raja,
When a debt is written off by a lender, the lender has decided you are no longer likely to pay the debt. This does not mean your debt has been forgiven and that you won’t be pursued for payment. What usually happens is that your debt is sold to a collection agency, whose sole purpose is to collect on those old debts. Consequently, it likely won’t go away quietly.

The collection effort can last until the statute of limitations is reached and sometimes beyond. Much will depend on how long it has been since you have made a payment on the account. A payment of any kind will re-start the clock on your debt. Sometimes even acknowledging that you owe the debt is enough to start it over as well, so be very careful with how you communicate with anyone about the debt. 

This does not mean that you can simply ignore the debt or the collection efforts. The statute of limitations laws limit the time that you can be sued for payment of the debt. These laws vary state to state, but are generally three to 10 years.

If you still have several years to go before you reach the statute of limitations, you may want to consider other options for resolving the debt. You could try to negotiate a debt settlement with the collector; the collector may even offer you a debt settlement of some kind. Be very careful about accepting or making an offer that you cannot ultimately honor. This is one of the situations that could re-start the clock on the statute of limitations so be very sure you can follow through. If you do choose to go with any type of settlement, be sure to get the terms in writing before you proceed. Other options might be to sell or borrow against an asset to pay the debt. Bankruptcy is also an option, but usually only as a last resort. You would have to consult with a bankruptcy attorney on that option. 

Remember that unless the debt is actually forgiven you do still owe and the collector will continue to try to collect. This is especially true if you live in a state that allows for wage garnishment for credit card debt. (Four states – Texas, Pennsylvania, North Carolina, South Carolina – do not allow garnishment for credit card debt.) State laws also regarding how much can be garnished at one time.

Usually wage garnishment is a last-ditch attempt to resolve a debt. If the collector does decide to go this route, you will receive a court summons. Whatever you do, you must not ignore a summons. If you don’t show up, you will most certainly lose and have a judgment against you for the debt. That judgment could result in a garnishment if your state allows them. Your best defense will be if the statute of limitations has passed, but I would strongly recommend you contact a consumer attorney to go with you to court even if it has.

Remember to always use your credit smarts!

See related: Do-it-yourself debt settlement

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Updated: 11-24-2017