A charged-off debt is when the lender has written the debt off its books and accepted the amount as a loss. It is strictly an accounting move for profit and income tax purposes, as the borrower still owes a charged-off debt. A mortgage debt is different from a credit card or unsecured loan due because the property that secures the mortgage has usually been foreclosed on in the process.
If you are unable to pay your mortgage, the bank will eventually take your house in foreclosure. The process varies depending on the state where you live, but ultimately, the bank sells your home for the highest amount it they can get for it. Usually, the selling price is not enough to clear the complete mortgage balance, and this deficiency is still owed by the homeowner. After some time of trying to collect this balance, the bank may charge this balance off its books to clean up balances, but it may still pursue you for payment.
When some buyers realize they cannot pay for their home and they owe more on the home than it is worth, they decide to work with the bank to sell the home before the bank forecloses. This situation is called a short sale and can work out well for all parties. The bank usually recovers more money with a short sale than it would with a foreclosure, and often the bank forgives the deficiency portion of the loan balance. The bank still needs to charge this amount off as a loss for accounting purposes.
A bankruptcy allows a debtor to discharge, or eliminate all of his eligible debt. Any deficiency amount that was charged off by the lender qualifies as eligible debt. While the bank still charged off the debt for accounting purposes, the bankruptcy discharge voids any responsibility the borrower has to repay this amount.
Pursuit of Charged-Off Amount
When a bank has charged off mortgage debt, it often will use a third-party collector to collect the debt. The bank also may sell the charged-off account for pennies on the dollar to a junk debt buyer, who will try to collect. Some debt buyers are extremely aggressive with their collections techniques and will often sue to get a judgment and garnishee wages. However, they often will settle debt for significantly less than the original amount.
Bankruptcy Vs. Charge Off
If you are having trouble paying your credit card bill, you have the option to cease payment altogether and receive a charge-off,...
What Is a Loan Charge Off?
Confusion over the meaning of a loan charge off can lead to financial problems if you unknowingly take the wrong course of...
How Do I Stop the Sale of My Mortgage?
In today's economy, more and more banks are selling mortgages off to other banks in an effort to liquidate their assets. In...
How to Get a Mortgage With Charge-Offs
Charge-offs and other negative credit marks lower your credit score, a number used by mortgage lenders when they are determining your eligibility...
Should I Negotiate a Settlement of My Second Mortgage?
With the drop in values of homes, you may think that a second mortgage holder would be willing to negotiate a settlement...
Is a Charged Off Mortgage Still a Lien?
A mortgage can be forgiven, discharged by a bankruptcy court or charged off by the lender. These are all different activities, although...
What Happens When a Mortgage Is Charged Off?
A charge off is a common occurrence in a mortgage that a debtor is struggling to pay off. When a borrower stops...