A “charge off” means that your delinquent debt was sold and/or transferred for collection purposes to a third party.   In all likelihood, after your debts are charged off, you will remain legally responsible for repaying the debt.  In other words, your debt is a contract to repay money, and those rights may be sold, assigned, and transferred to a third party. Some of the large credit card companies use collection agencies to collect their debts.  Here, credit issuers prefer to outsource their collections to aggressive third party agencies who take the risk and rewards in collecting delinquent debts.  In the alternative, many companies and debt collectors are active in the delinquent consumer debt market, and purchase delinquent debt from credit card companies. In these cases, your debt is sold to these companies for a fraction of its full value.

In either instance you have a right to request that the original creditor or new account owner provide documentation that verifies the debt.  You have a right to request a record of assignment and transfer if your debt was sold to a third party.  You also have the right to request an account statement that provides a breakdown of the principal and interest owed, as well as a statement of all credits made to your account. For more information, see the Fair Debt Collection Practices Act, 15 USC s. 1692(g) for the Federal statutes concerning the validation of debts.

If you are considering paying debts that are now owned by a third party, keep in mind that paying off those debts may not improve your FICO credit score. The most important factor that weighs upon your credit score is what the original creditor reports to the consumer reporting agency. This report is weighed upon much more heavily than what is reported by a debt collector or third party assignee of a debt.  In other words, paying off collections accounts does not improve your FICO credit score.

Last year, Congress passed new legislation designed to help the average borrower. This legislation that was signed by President Obama last May, prevents card companies from raising rates on existing balances unless the borrower is at least 60 days late and would requires the original rate to be restored if payments are received on time for six months. The law also requires banks to get customers’ permission before allowing them to go over their limits, for which they would have to pay a fee. This law went into effect in February of this year.

So how did the credit card companies respond to this law? Simple….they all raised their rates just before February regardless of the borrower’s payment history or credit score. So effectively, the credit card companies gave them selves a quick raise before they were no longer allowed to. (I guess the bailout wasn’t enough.)

So for most of you who were probably just making ends meet up until February, you are now finding that it is harder and harder to keep up with your payments, even falling behind on your bills or losing money to bank overdraft fees that seem to creep up on you when you least expect it.

Well, guess what? You are not alone. We have had several recent clients who saw their credit card payments increase over $500 a month. Prior to this, they had perfect credit and had never missed a payment. After their payments increased they fell further and further behind until finally they ran out of options.

The point is, there are options available. For a few with relatively small balances, credit counseling may be an option. However, if your balance is over $20,000, you may find this option unacceptable. This leaves Bankruptcy. Bankruptcy provides people like you with an an opportunity to take control of your finances. In most cases, through bankruptcy, you are able to discharge all of your unsecured credit card debt. This leaves you debt free and gives you an opportunity to start over with your credit score.

Keep in mind that bankruptcy is not for everyone; but for most, it is a very powerful tool that will allow you take control of your finances. Our firm provides a free consultation for anyone who is having problems paying their credit cards. There are no obligations, so contact us today.