Charge-Offs and Write-Offs: Not Much of a Difference
Part of making the decision to file bankruptcy is trying to determine whether you actually owe money and how much you owe. Unfortunately, that simple question can sometimes be quite difficult, especially if you have older debts. You may be uncertain which debts are actually valid (that is, whether you even have to worry about them), and which debts are so old you can ignore them.
One good way to make that determination may be to see if the debts have been charged off. Charged off debts are gone forever, and you never have to worry about them, right? Actually, the analysis is a little more complex than that.
The difference between a charge off and a write off are concerns that normally only affect accountants. But creditors label consumer debts with these terms all the time, and it can be confusing for a consumer who sees either term. The consumer may just automatically assume that the debt is invalid, regardless of which term is used.
The term “charged off” is normally used to imply that the creditor no longer considers the debt collectible. It is bad, unlikely to yield any return, and once the creditor has this feeling about debt (usually after 90-120 days of non-payment), it has an obligation to its shareholders and investors to tell them about that.
Charged off is akin to saying in the creditors mind, there is no immediate chance of repayment. It is a label used by the creditor to move the account from one accounting column to another.
But the creditor’s mind is not the law, and not a business decision invalidating the debt. The fact the creditor has written off the debt doesn’t affect the legal viability of the debt at all. In fact, in many cases, charged off debts are sent to collection agencies, or sold to debt buyers. On your credit report, you may even see the language “transferred to…” with the name of a collection agency, after the charge off language.
Write-Offs: Different But the Same
A write-off is a bit more official. With a write off, the creditor is declaring your debt as a loss with the IRS, so it can get the tax benefits of a write off. But that still doesn’t excuse the debt, or indicate that the creditor can’t or won’t continue to enforce the debt. It also doesn’t affect the enforceability of the debt in court.
Other than perhaps the reporting to the IRS, and taking the debt as a tax loss, there is no difference between these terms. Your debt remains unaffected as far as collection. You should not rely on either of these terms, when making the decision whether or not to file for bankruptcy.