Applying Decades Of Experience To Solve Modern Legal Issues

Bankruptcies and Debt Charge Offs

On Behalf of | Jul 15, 2022 | Bankruptcy

At some point, you may have found that your debt has become unmanageable. This can happen if you lose your job, become seriously ill, or need to take time off work to care for a family member. When that happens, short-term loans can become long-term burdens. The Iowa legislature has put laws in place to help protect you from predatory collection practices.

What Is a Debt Charge Off?

Whether you are carrying debt or not, it’s always a good idea to keep an eye on your credit report. This helps you identify unauthorized activity. If you have been unable to pay a loan payment or credit card for several months, you may notice it is recorded as a charge-off on your credit report.

This can happen when payment is 90 to 180 days past due. At this point, the creditor or lender assumes that it is unlikely you will pay this debt in the near future. They cannot carry your debt on the books as an asset, so it’s marked as a charge-off.

This status is reported to the three major credit bureaus. This allows the creditor to write off bad debt for tax purposes. However, it does not mean that you are not responsible for the debt. Instead, it is transferred to a collection agency that pursues the debt on the lender’s behalf. In some instances, the lender sells the debt to the collection agency.

A charge-off reflects poorly on your credit history. It not only damages your credit score but can also independently create a problem when you want to rent an apartment, apply for a job, or make a major purchase using credit.

Types of Bankruptcies

There are two common ways you may restructure your finances in a bankruptcy. In Chapter 7 bankruptcy, often called a “liquidation bankruptcy,” most unsecured debts will be discharged without having to repay the lender. It’s important to work with a bankruptcy attorney to help protect your property, which may be found to be non-exempt and used to pay off the debt.

In a Chapter 13 bankruptcy, there is an agreed-upon structured repayment plan. However, you will not be responsible to pay back all the debt. A Chapter 13 bankruptcy restructures debt so that you pay off what you can afford over a three to five-year period. Anything remaining at the end is discharged as it would be in a Chapter 7 bankruptcy.

How Does a Debt Charge-Off Affect Bankruptcy?

Whether you file for Chapter 7 or Chapter 13, the court will need a comprehensive list of all your finances. This includes your assets, debt, and income. That includes debt recorded as charged-off on your credit report because they are still valid debts.

When a charge-off is on an unsecured debt, like a credit card, a Chapter 7 bankruptcy will wipe out the debt immediately, and a Chapter 13 restructure will allow you to pay as much as possible for three to five years. At the end of the repayment plan, any unsecured charged-off debts will be discharged as long as you have followed the rules of the bankruptcy plan.

However, when the charge-off was secured with an asset, such as a loan on a car or home, a charge-off is handled differently. If the asset has been repossessed, and you continue to owe the remaining debt, this portion may now be listed as an unsecured debt.

This unsecured debt will be handled in the same way as an unsecured credit card debt or bill to a medical provider. If you continue to own the asset, you may be able to salvage the property by working with a bankruptcy attorney.

Contact Telpner Peterson Law Firm, LLP, for Help with a Bankruptcy Today

If you find yourself unable to pay off your debt, contact Telpner Peterson Law Firm, LLP, today. The sooner you address your financial issues with your creditors, the better the outcome will be. Our experienced attorneys will work with you to salvage as much of your property as possible. Call our office today at 712-309-3738 to schedule your confidential consultation.