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Member
prettymese
Posts: 5
Registered: ‎10-06-2011
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Difference question

I wanted to know if anyone can tell me what the difference is between a charge off and a collection account? And if an account is charged off, can the original creditor sell that account to a collection agency? 

Regular Contributor
ccb2115
Posts: 190
Registered: ‎11-23-2011
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Re: Difference question

Just a disclaimer. This isn't an "official" definition.

 

A charge off is when you've consistently been late with your payments (120+ days) and the OC no longer believes you have the ability to pay the owed amount of money. So to prevent further damage, they charge off/close the count. At that point they still may be in contact with you to try to collect the payment in full before getting a third party involved. 

 

A collection account is when a agency is hired to collect the payment in full to settle the account, though a settlement may be offered. A collection account does not have to be a "charge off' credit account. I.E if you don't pay your utilities bill, they can sell the account to a collection agency, but the original account will not be a "charge off" account that will be on your credit report.

 

So to answer your second question, yes an original credit can sell an account to a collection agency.

 

Hopefully this helps. I'm sure someone else will offer up a better definition :smileyhappy: 

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Mega Contributor
RobertEG
Posts: 18,477
Registered: ‎03-19-2007
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Re: Difference question

[ Edited ]

Huge difference, to the point of almost being unrelated.

 

A charge-off is the reporting of an internal bookeeping measure taken by a credit.  Once a debt reaches a stage of delinquency where it is considered by the creditor to be "uncollectible," they do an internal accounting that moves the formerly receivable debt from a receivable asset to a portion of their accounting ledger that contains uncollectible debt.

After taking that accounting measure, they can report it to the IRS and obtain a tax writeoff.

 

Some credtiors, paricularly banks that are regulated by the Treasury, are required by statute to charge-off bad debt after a certain period of time.  The basis is that the continued reporting of uncollectible debt as an asset overstates their current assets, and thus is misleading to investors.  Thus, the public interest reason why congress provides a tax benefit for reporting a CO.

 

A collection can occur with or without a charge-off.  The credtior is simply seeking the assistance of a third party to conduct collection activities on their behalf.

If the OC still owns the debt, the debt collector is simply their agent.  Having done a charge-off does not deprive anyone, including the OC, from continuing to collect the entire debt.  It has zero effect on the debt vis-a-vis the consumer.  However, a credtior usually sells the debt after doing a charge-off to recoup a few more bucks.

Usuall pennies on the dollars, but as a debt otherwise considered uncollectible, it is better than nothing.

 

ONce a debt collector, either by way of assignment of collection authority or by purchase of the debt, has such authority, they can report their collection to the CRAs.

Again, immaterial, except for the financial dealings of the parties, to credit reporting of a collection.

 

Creditors cannot delete the reportings of a debt collector, and debt collectors cannot delete the reportings of a creditor.  They can both appear at the same time in a consumer's credit report, and represent two totally different items of adverse information.

 

 

Member
prettymese
Posts: 5
Registered: ‎10-06-2011
0

Re: Difference question

Oh ok...thank u for the replies. It had me a little confused, because I was informed by a finance manager at car dealership that once an original creditor charges off a debt they cannot legally sell that account to a collection agency. I never heard of this before. I had a repo back in 2006 from Wells Fargo and the last reprting amount was$12-$13000 its shown on my credit as a $0 balance charge off. LVN Funding is the collection agency that it was sold to. Now they have been on my credit report since 2006 also with a balance of $17000, but a few months ago they deleted and just now reappeared with an updated status, open date and new amount of $18,000+. I just don't know if this is right or not.


RobertEG wrote:

Huge difference, to the point of almost being unrelated.

 

A charge-off is the reporting of an internal bookeeping measure taken by a credit.  Once a debt reaches a stage of delinquency where it is considered by the creditor to be "uncollectible," they do an internal accounting that moves the formerly receivable debt from a receivable asset to a portion of their accounting ledger that contains uncollectible debt.

After taking that accounting measure, they can report it to the IRS and obtain a tax writeoff.

 

Some credtiors, paricularly banks that are regulated by the Treasury, are required by statute to charge-off bad debt after a certain period of time.  The basis is that the continued reporting of uncollectible debt as an asset overstates their current assets, and thus is misleading to investors.  Thus, the public interest reason why congress provides a tax benefit for reporting a CO.

 

A collection can occur with or without a charge-off.  The credtior is simply seeking the assistance of a third party to conduct collection activities on their behalf.

If the OC still owns the debt, the debt collector is simply their agent.  Having done a charge-off does not deprive anyone, including the OC, from continuing to collect the entire debt.  It has zero effect on the debt vis-a-vis the consumer.  However, a credtior usually sells the debt after doing a charge-off to recoup a few more bucks.

Usuall pennies on the dollars, but as a debt otherwise considered uncollectible, it is better than nothing.

 

ONce a debt collector, either by way of assignment of collection authority or by purchase of the debt, has such authority, they can report their collection to the CRAs.

Again, immaterial, except for the financial dealings of the parties, to credit reporting of a collection.

 

Creditors cannot delete the reportings of a debt collector, and debt collectors cannot delete the reportings of a creditor.  They can both appear at the same time in a consumer's credit report, and represent two totally different items of adverse information.

 

 


 

Mega Contributor
RobertEG
Posts: 18,477
Registered: ‎03-19-2007
0

Re: Difference question

[ Edited ]

There is nothing related to charging-off a debt that terminates the consumer obligation on the debt.  To state that a creditor cannot sell a debt after charging it off is just plain wrong.

 

The debt collector, if they purchased the debt, was authorized to report their collection to the CRA.  If they voluntarily deleted, there is nothing prohibiting them from re-inserting it.

They can continue to report it forever.

It is the responsibility of the debt collector, after reporting to a CRA, to provide them with the date of first delinquency (DOFD) on the OC account within 90-days of their reporting of the collection.  The CRA is then responsible for monitoring that DOFD, and excluding any information reported by anyone on that collection after 7 years plus 180 days from that single DOFD date.  The new reporting by the debt collector does not reset the single, date-certain DOFD, and thus does not extend the period that their reporting will continue to appear in your CR.

Member
prettymese
Posts: 5
Registered: ‎10-06-2011
0

Re: Difference question

Thank you so much for that info! I knew what she said to me didn't sound correct at all. 


RobertEG wrote:

There is nothing related to charging-off a debt that terminates the consumer obligation on the debt.  To state that a creditor cannot sell a debt after charging it off is just plain wrong.

 

The debt collector, if they purchased the debt, was authorized to report their collection to the CRA.  If they voluntarily deleted, there is nothing prohibiting them from re-inserting it.

They can continue to report it forever.

It is the responsibility of the debt collector, after reporting to a CRA, to provide them with the date of first delinquency (DOFD) on the OC account within 90-days of their reporting of the collection.  The CRA is then responsible for monitoring that DOFD, and excluding any information reported by anyone on that collection after 7 years plus 180 days from that single DOFD date.  The new reporting by the debt collector does not reset the single, date-certain DOFD, and thus does not extend the period that their reporting will continue to appear in your CR.


 


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