Credit card query - 'bad debt' write-offs must still be paid - Brief Article

Black Enterprise, August, 2001 by Monique R. Brown

Q My credit report shows that a creditor has written off what I owe them as a bad debt expense. Now, I've received a letter stating that a new firm has purchased my account and wants to collect. If my debt has already been written off, do I still owe?

--Name withheld

A Absolutely. A charge-off enables the firm that you owe to get a tax break by claiming a loss; it doesn't exonerate you from the debt. In fact, it simply lets future creditors know that you have a debt that you have failed to satisfy. And contrary to popular belief, the charge-off does not just disappear after seven years. "[A creditor] can upgrade a debt three times every seven years, so a charge-off can actually stay on your credit report for 21 years," according to Luther Gatling, president and founder of Budget and Counseling Services (800-475-1994; www.buccs.com).

Sometimes, as in your case, a collection agency or other firm will purchase an account receivable (your debt) for a discount in hopes of collecting the full amount. This only means that the firm you owe has changed but the amount you owe remains the same.

If you pay the debt, which is the only way to positively influence your credit standing, "ask for a letter stating that the debt is satisfied in full and that is sent to all of the credit bureaus," advises Gatling. "[The charge-off] still stays on your credit report for seven years but it will also show the debt was paid."

--Monique R. Brown

Mail your consumer questions to Ask Your Advocate, BLACK ENTERPRISE, 130 Fifth Ave., New York, NY 10011, or send an e-mail to brownmr@blackenterprise.com.