What Happens After a Credit Card Is Charged Off?

If you've received a charge-off notice in the mail, you're hardly the only one. Charge-offs are a fairly common part of the credit card and debt cycle. 

The situation often isn't as dire as it might seem. There are steps you can take, like seeking out debt relief, to get rid of your debt and get on stronger financial footing.

To help you get started, we'll go over how a credit card charge-off works, and what could happen after you receive a notice. We’ll also look at what debt collectors can and cannot do, so you can decide how to proceed.

What Is a Credit Card Charge-Off?

A credit card charge-off means the credit card company has decided it isn't going to get its money back so it writes off your outstanding balance as a loss. This typically happens after 120 to 180 days of missed payments, but the exact time frame depends on your creditor.

Once a credit card issuer has charged off your account, it usually stops trying to collect payment directly, and it claims your balance as a loss on its tax return. Your credit card account will be closed, if it hasn't been already.

While the original creditor will stop trying to collect on the debt, you still owe that debt and are legally responsible for it. A charge-off doesn't make your debt go away or disappear.

What Happens After a Credit Card Is Charged Off?

After your creditor has charged off your credit card debt, it may sell your debt to a buyer or transfer it to a collection agency. The buyer or agency may contact you via phone, mail, or email to request payment. This can continue until you've paid off the debt or have reached an agreement with the agency.

Collections agencies could pursue legal action against you if you don’t pay. But this is often a method of last resort. 

Lawsuits take time and money, and most collections agencies would rather work out a payment plan with you. You can often avoid legal action by being proactive and exploring all of your debt relief options.

How a Charge-Off Affects Your Credit

A charge-off appears on your credit reports when the credit card issuer notifies one or more of the three credit bureaus. Payment history is the most important factor in your credit score, so a charged-off account is considered a very negative item.

How the charge-off impacts your credit scores will depend on what your scores looked like before it hit your reports. Since companies don't tend to charge-off an account until it's well past due, your credit score may already be damaged. Extra impact from the charge-off could be less than you expect.

Charge-offs remain on your credit score for seven years from the date the account became delinquent—that is, the day you fell behind on your payments. But the effect on your score diminishes over time, especially if you work to build a new positive payment history. 

If you pay off your debt or negotiate a settlement (more on that below), your credit reports should reflect this by showing the account as "paid" or "settled." This is better than an outstanding balance on your charged-off account, and it's a good first step if you're trying to rebuild your credit and get your finances back on track after the charge-off.

Freedom Debt Relief is not a Credit Repair Organization and does not provide or offer services or advice to repair, modify, or improve your credit.

Your Rights When Dealing With Debt Collectors

There are limits on what debt collectors can do when contacting you about your charged-off credit card debt. You're protected by the Fair Debt Collection Practices Act (FDCPA), which limits what collection agencies—but not original creditors—can do to collect unpaid debts.

The law says that collections agencies may not:

• Contact you more than seven times in seven days about a single debt, or for seven days after speaking to you about your debt

• Lie or threaten to harm you or your family

• Call you at work if you've notified them that your employer doesn't allow such calls

• Communicate with people other than your spouse about your debts without your permission

• Use obscene language when speaking to you

• Misrepresent how much you owe

• Deposit post-dated checks before the date on the check

The law also says collections agencies must give you an opportunity to verify or dispute the debt (within 30 days from when they contact you). If you dispute or request validation of the debt, the agency may not resume collection activities until it has responded in writing to your letter.

Options for Resolving Charged-Off Debt

If you've received a charge-off notice, there are still ways to get credit card debt relief. Start with the steps below.

Verify the debt

First, verify that the debt collector's information is correct. It's possible it may have confused you with someone with a similar name or Social Security number. Request debt verification from the collection agency within 30 days. The Consumer Financial Protection Bureau (CFPB) has templates you can use.

When you receive a response, make sure all the information is correct. If there's anything that seems wrong, like a missed payment you know you made, provide copies of your own documentation to the collection agency.

Negotiate a payment plan or settlement

Collections agencies will often be willing to negotiate with you to find a mutually beneficial payment plan. You may also work out a debt settlement agreement. This is when the debt collector agrees to accept less than you owe and forgive the rest of the debt.

Why does this work? Debt buyers typically pay less than the full value of a debt to purchase it. This gives them wiggle room to accept less than owed and still make a profit. Settlement is also often preferable to a costly and time-consuming lawsuit.

Settlement typically works best if you can show financial hardship that makes it impossible for you to repay your full balance owed. This could be a job loss, medical bills, or other major life event that upended your financial stability.

Consider professional debt relief

Negotiation with creditors and collectors is possible to do on your own. However, you may prefer to work with a professional debt relief company like Freedom Debt Relief to get help negotiating your charged-off credit card debt. 

These companies charge you a percentage of the enrolled debt, but you don't pay anything until the company has negotiated an offer on your behalf, you approve it, and the debt relief company makes at least one payment on your behalf.

In exchange for the fee, you can hand off the task of negotiating with your creditors. Professional companies may be able to secure better settlement offers than you could get on your own, in part because they often have existing relationships with creditors and collection agencies.

If this seems like the right option for you, schedule a free debt evaluation with Freedom Debt Relief. An experienced debt relief specialist will explain how the program works and help you decide whether it's a good fit for your situation.

Explore bankruptcy

Bankruptcy is a legal way to get out of paying your debts. Chapter 7 bankruptcy could eliminate your unsecured debt if you qualify. It may require you to sell some of your assets, though, and a high income could disqualify you. Consult with a licensed bankruptcy attorney in your state to determine if bankruptcy is the right move.

Can You Get a Credit Card After a Charge-Off?

Yes. It's definitely possible to get a new credit card after a charge-off. But your odds of success depend on the type of credit card you look at, and how long ago the charge-off occurred. 

You may have difficulty getting a new rewards credit card right after a charge-off. Lenders see the charge-off when they check your credit report as part of an application review. They'll probably be wary of lending to you if they don't think you'll keep up with your payments.

Secured credit cards may still be an option. These cards require you to make a down payment (which usually becomes your credit limit). With regular, on-time payments, you could raise your credit score. If you close the secured card with a $0 balance, the issuer refunds your deposit. 

This is a great place to begin if you're trying to rebuild your credit. Once you've seen your credit improve and your charge-off is several years in the past (or no longer on your credit report), you'll have a better shot at getting rewards cards again.