Do I Have to Pay a Debt that Was “Charged Off”?

“Charge off” is accounting jargon for the formal determination that the creditor is no longer treating its claim against you as an asset.   It permits the creditor to take a “wholly worthless bad debt” deduction on its taxes under Sec. 1244 of the IRC.    It does not mean the creditor has released its claim and it cannot pursue you.  Any payments received after the debt is charged off are treated differently for tax purposes.   And that its claim against the reorganized debtor is not on its balance sheet above the line.
What it does mean is that the creditors still retains the right to collect the full amount of debt and have a variety of options available to them. Depending upon the situation, the creditor may have internal collections staff pursue collection or sell it to an external collector, or the creditor may elect to sue on the entire debt.
Statute of limitations: most debtors do not understand that the creditor has a limited amount of time to collect on the debt.  That time limit is call the “statute of limitations” and differs in each state.  Here is a link to an article on Credit.com listing the statutes by state: Statutes of Limitation on Debt Collection.  WARNING: this list may not be accurate so it is very important you talk with an experienced attorney to determine your rights.

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