Monday, January 9, 2012

Do I Still Have to Pay Debts that are Charged Off?

Someone recently wrote me and asked if he had to pay an old debt that was charged off and sold to a debt collector. This is what that depends on. The key points:

1. The tough news is that after a debt is charged off, you still owe it. Charging off a debt is an accounting practice meant to give a fair picture of the value of a business (by taking bad debt off the books). Charging off an account does not affect the legal obligation to pay it, and the business must account for any money obtained once they sell the debt to a debt buyer. Often there will be a gap between when the debt is charged off and when a debt buyer emerges to contact you for payment. This is where the "zombie debt" term comes in, i.e. you think the debt is dead, but then it resurrects and attacks you.

2. The (possible) good news is that gap is sometimes too long, and the debt too old, to make it collectible in a court of law. Just because a debt is sold to a zombie debt buyer, it doesn't mean that the statute of limitations revives if it has already lapsed. Generally, the statute if limitations in Massachusetts for debt collection is six years from the date of the original default. If you make any partial payments later, this will usually re-start the clock, but if you don't the six-year rule usually will apply.

3. If the debt is still good once it's in the hands of a debt buyer, you must pay it, settle it, or file bankruptcy. We specialize in affordably accomplishing the last two options for Massachusetts consumers and small to medium-sized businesses. Give us a call, send us an email, or visit our web site if you would like our help with a debt law issue.