The fact that a creditor has taken a charge-off on the account does not remove the continued oblgiation of the consumer for the full amount of the debt.
A charge-off is an accounting measure that moves a delinquent debt from a receivable asset to a bad debt, thus adusting their stated assets to remove debt unlikely to ever be collected. However, it does not excuse the debt or the continued ability of the creditor or a debt collector to continue to collect the full amount.
The account agreement with the consumer defines what amounts can be added to the principal amount of a credit card debt, and usually includes specific provision for the continued accrual of interest on delinquent debt.
Thus, the debt balance can change due to the additon of interest and/or the subtraction of any subsequent payments.
A secondary issue that is the subject of numerous case law interpretations regards if/when a creditor waives the right to continue to accrue interest after a charge-off.
For several legal reasons, the most usual of which is that if they continue to assess interest, they may have an obligation to send the consumer updated billing statements under provisions of the Truth in Lending and the Fair Credit Billing Acts, many creditors will voluntarily cease to continue assessment of interest after having taken a charge-off.
If issues of possible waiver arise, it is left to the courts to determine whether any additional interest can be assessed, which also includes assessment of interest by a debt collector after a charge-off by a creditor. While FDCPA 808(1) states that it is a violation of a debt collector to assess interest or other amounts unless they are explicitly authorized in the account agreement that created the debt or permitted by law, the issue of prior waiver by a creditor of any additonal interest accrual has normally been interpreted by the courts as carrying over to assessments by a debt collector.
In view of the various legal interpretations given to assessment of interest after a charge-off, some states are beginning to pass statutes that more clearly define requirments for debt collectors to include itemization of principal and interest in their dunning notices and/or their debt validation letters.
