What is a Charge Off? Settled-Less Than Full Balance?

[retroAction]

I am working on my DW's credit and the hits keep on coming. Unfortunately before I met her she had her dad managing her finances for her. She had her paycheck auto deposited into his account and then he would transfer a set amount to her for spending money.(She was 23 when I met her and this was still going on!) From what I understand, her parents had cosigned on a school loan at some point and she had asked her dad to help her figure out how loan deferment worked while she was in school and he offered to just handle her expenses for her. Once she graduated and was out of school he wanted to keep managing her finances so she just let the checks keep rolling. Sadly, since that point there have been quite a few rude awakenings that have virtually severed our relationship with them; One of them being the discovery that her dad was just pocketing her pay checks and had settled/charged off over 10 different accounts at the obvious expense of her credit. Now I'm trying to pick up the pieces and see where we can go from here.

What is a charge off? I do not fully understand what this is. Is this an action that the OC took or was this something that was opted for by her dad? How does this differ from a settlement? I have never dealt with either of these things with my credit and since I don't have access to the statements or to what actions her dad actually took during this time period, I am a little confused as to where to go from here.

DW has over 10 different accounts that either say "Charge Off" or "Settled-Less Than Full BLNC" and some say both. Do we still owe money on these accounts? They all reflect a $0 balance. Are GWs my only recourse? How likely am I to be successful GWing on CO and Settled accounts?

The laundry list of lenders, some are student loans and some are just charge accounts:

First Premier Bank X2

LVNV Funding LLC

SEARS/CBNA

TNB-Target

Wells Fargo

Wells Fargo Card Services

Wells Fargo Education SV

WFNNB/Victoria's Secret

Arrow Financial Services

Texas A&M University X4

[RobertEG]

Creditors carry delinquent, unpaid debt on their books as receivable assets.  That asset is included in their financial and tax reporting.

Often, that can lead to assets of a company being overstated when the asset is not reasonably expected to be received.

Regulators have provided incentive, and in some cases statutory requirements, for creditors to remove such uncollectible assets from their accounting ledgers and financial statements, with the intent to provide others with a more accurate accounting of their assets.

That is what a charge-off basically is.  For the most part, it is an internal accounting measure taken by a creditor that has little or no effect on the debt.

Taking an accounting charge-off of the debt does not in any way affect the consumer's obligation for the entire debt, the ability to continue attempts to collect the entire debt, or to sell the debt to another.  They can sell at a discount, and the purchaser can still legally attempt to collect the entire amount.  If a creditor sells a debt, charged-off or not, they no longer have any claim to the debt, and must update their credit reporting to show $0 balance.  That does not mean the debt has been paid.  A consumer can often have a CR that shows no reporting of debt balance due, but the new owner can report it if they choose.

Any reference to settlement on the debt is totally separate.  The full debt lingers out there somewhere.  If the consumer then settles on the debt, it becomes legally satisfied.

No more collection on the debt, no legal action, etc.  The consumer's CR reflects that they satisfied the debt.

If the amount accepted in satisfying the debt was less than the full amount of the debt, it still paid and gone.  It shows only one current status in the consumer's credit report.....  Paid.   However, the creditor can place a special comment of "paid/settled for less" in the consumer's credit file, notifying others that, while paid, the consumer did not fulfill their entire obligation on the debt they accrued.  That is never a favorable comment.

[retroAction]

Thank you for your reply RobertEG, this clarification was very helpful. I just had to flashback to my accounting classes and now it is all starting to make sense. DWs credit has a long way to go.