LawRefs Customized Legal Information
Attorney Renee C. Walsh

Getting Sued for a Debt that is “Charged Off”


If you have a delinquent debt, after some time it will show up on your credit report as “charged off”.  A frequent inquiry is “what does this mean” and can I still be sued for it?

“Charged off” does not mean the debt has been canceled; it is merely an accounting term useful for tax purposes.  You still owe that money but likely owe it to another party.

If you see “charged off” appearing on your credit report, this means that the creditor is letting other potential creditors of yours know that they had to write off the debt as a bad debt (rather than an asset for accounting purposes) because you did not pay your bill.  In most cases, that creditor does not end up being the one to collect the debt from you, as they will sell it to a collection agency.  Since you owe the creditor, the debt is his to assign to another party who jumps into the original creditor’s shoes and can sue you as if you originally contracted with them.

Creditors collecting on debts must do it legally.  They must follow their state and federal collection practices acts.  They must also report your history with them accurately and legally according to state and federal credit reporting acts.  Your bad history will show up for seven years.  If you finally pay the debt, then your report should be updated to include an indication that the debt has been paid, such as “charged off, paid” or “charged off, settled.”  This looks better than merely “charged off” because it looks like you paid even though it was financially very difficult.

If you have a valid defense to paying the debt, you are entitled to indicate that in an explanation that will show up next to the adverse incident on your report.  This is a step to take while settling the matter with the creditor.  In negotiations for settlement, consider including a clause in the settlement agreement that the creditor will not report the debt negatively on your credit report, and as always, put everything in writing.


  1. I have a charged off account that I’ve been making payments on for the past 3 years. The debt was reported charged off march 2013. I’m in Alabama and I understand that the statute of limitations is 3 years from the original date of delinquency, which is November 2011. Can anyone sue me if I quit paying? What happens to my credit if I quit paying the collection agency? My score is about a 705 so I’ve worked hard to get it back. Was just curious how these different scenarios work. Thanks!

    • Dear Joe C.

      If you want to maintain and/or improve your credit score, then It’s a good idea to keep paying the debt. Typically, the limitations period resets at the last activity. Therefore, when the debtor stops paying on a debt, and then starts paying again, later, then the statute resets at that later time. If you continue paying on the debt, you will be able to ensure that your credit report says, “charged off; paid”. This looks good to a potential lender because it tells them that you paid, even though it was very difficult for you. If you stop paying on a valid debt, and debts are still valid even though “charged off” (which is an accounting term and does not mean the contract is no longer valid), then, yes, you can certainly get sued, and that would have a drastic effect on your score. If you quit paying because you cannot afford it, then consider attempting to settle the debt. Unfortunately creditors typically will not settle until a couple payments are missed, and in missing payments there is a risk of getting sued. Therefore, a debtor can quit paying in order to work out a settlement, but they risk receiving a legal complaint in the mail.

  2. If the account is past six years can they sue me?

  3. I had an account that was charged off by the original creditor. The account was taken over by a 3rd party and is now suing for the charged off amount. They probably bought the account for a fraction of the cost. Can they sue for full amount or can I just pay them what they bought the account for and have it settled?

    • Dear Jerry M:

      Usually these collectors will settle with the debtor for a fraction though they probably have the right to collect whatever was owed the original creditor.

  4. Can you please post what the State of Michigan considers "competent evidentiary material" for debt validation from a debt buyer? Are they required to provide copies of the assignment contract from the original creditor to the debt buyer and/or copies of the original contracts signed between the creditor and the debtor? How does one know for sure the debt buyer owns the account and has a legal right to collect the debt?