If you fail to make your credit card payment, your credit card issuer may "charge off" your account. Not only are charge-offs the No. 1 reason why creditors get denied new loans, according to Steve Bucci of Bankrate, but your lenders can still sure you to recover the unpaid debt. Talk to a lawyer if you need legal advice about credit card lawsuits and your liability as a debtor.
A charge off is an accounting term used to describe a creditor who no longer considers a debt an asset. When your creditor lent you money, it counted on you to make timely payments and, because of those regular payments, counted you and your loan as an asset. Once you fall behind payments, the creditor is still out the money it gave you but is no longer collecting money from you. If you go long enough without paying, the lander no longer considers your account an asset and changes it to a liability by listing it as a charge off.
All a charge off does is change how a lender views a debt. If a lender charges off your debt, this in no way affects how much money you owe or eliminates your responsibility for paying back the debt. You borrowed the money and are still a debtor. Unless you pay back the lender for the money you took, your lender can still sue you to recover.
If your lender sues you to recover an unpaid debt, it has to follow the laws that govern civil lawsuits in your state. For example, the lender has to tell you that it filed the lawsuit through a procedure known as service of process. Typically, a company meets service of process requirements by sending you a certified letter containing a copy of the lawsuit, by having someone personally deliver a copy to you or by having the county sheriff serve the suit on you personally.
A charge off is not only devastating for your chances of obtaining new credit, but a creditor who sues you and wins can take actions against you that can damage your finances. If you get sued for a unpaid and charged-off debt and the creditor wins, it may be able to garnishee your wages or seize your property. For example, a creditor can take out a percentage of your paycheck each week or seize funds in your checking account until the debt is paid.
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