How to get ahead of late fees
Is There a Service That Helps You Not Pay Bills
Is a Debt Owed
Patience is the key to furnishing a new home
How to split expenses with your partner
Will my boyfriend's bad credit affect me?
Tax filing options to consider
What to do if your account is turned over to collections
Celebrating Valentine's Day on a budget
Personal Credit and Starting a Business
Finding Money to Reduce Your Debt and Improve Your Credit
Simple Keys to Personal Finance
Be vigilant to avoid telephone and internet scams
Understanding credit utilization
Setting New Year's goals that you can keep
The pros and cons of skipping a payment
Strategies for Financially Surviving the Holidays
Creating a fun and memorable holiday on a budget
Keep an open line of communication with parents about their finances.
Make a Choice to Get Ahead Financially
What to do when a relative asks you for money
Should You Buy a Home Now or Wait?
The difference between debt settlement and debt management
Tax Refund Delays for some in 2017
The negative impact of paying a payment 30 days late
Stressed by Finances
How to navigate two significant financial decisions: starting a family and buying a home
How to advise someone close to you who is coming into a significant amount of money
Make a Conscious Decision on How to Spend Your Money
Tips for Back-to-School Shopping
How do you know if you have a good credit score?
Americans spend more money eating out than on groceries
Having Good Credit Saves You Money
Developing good money habits with your first job
How to save for a home
How to Know if you are Ready for Home Ownership
When is the right time to buy a home?
You can improve your credit to buy a home
Plan a Memorable Vacation Without Incurring Debt
The Hidden Costs of Payday Loans
Be Wary of Credit Repair Services
Use Caution when playing the credit card game
What does it mean to say bankruptcy gives you a clean slate?
How your credit is affected by various debt options
Be wary of predatory small business loans
What to do if you fall behind on mortgage payments
Financing a College Education
Money, Credit and Relationships
Should you be concerned with your date's credit scores?
Best options for a small, short-term loan
How to help a relative who is always borrowing money from you
Setting New Year's goals that you can keep
Making the holidays memorable for families on a tight budget.
Skipping a Payment over the Holidays
What to do if you are overwhelmed by medical bills
Make your financial intention a financial goal you can achieve
Should Consumers Use the New EMV Cards?
What to do when a collector calls you
The difference between paying bills and managing your money
My wife and I have gone through some tough financial times, which eventually led us to file for bankruptcy. Following this experience, I don’t ever want to use credit again, but my wife
What do I need to know to pay ahead on my mortgage?
What to do if you get an unsolicited credit card in the mail
What to do when moving in to share expenses doesn't work out
Is a Debt Owed
Q. I recently read an online forum which said that a creditor charges off a debt once it’s turned over to collections. What’s more, I gathered that a person does not have to repay this debt and can write “cancelled” on any invoices received from a collection agency instead of paying the bill. Is this information correct?
A. Unfortunately, the Internet is often a source of misinformation. If you opt to write “cancelled” on a invoice for a debt you legitimately owe, you may find yourself being sued. If you’re already dealing with the fallout from past debts, getting sued will only further complicate your situation.
Many people use the words cancelled, charged-off and forgiven interchangeably, but they have different legal meanings. If you are uncertain of the status of your account, you need to clarify if the creditor is truly forgiving the debt or just charging it off.
When a creditor decides to charge off a debt, the creditor believes that you will not pay what you owe. However, a charge off represents an accounting entry, and does not indicate that your debt has been cancelled or forgiven. Even after a debt has been charged off, you still owe the money, so a creditor may choose to send your account to a collection agency.
On the rare occasion that a creditor would forgive or cancel a debt, a person is no longer legally responsible to pay it. However, anytime a debt is forgiven, the IRS considers this income. You would be responsible for declaring this on your taxes. If a creditor forgives a debt, you would receive form 1099-C from the creditor.
When you borrow money, you are legally obligated to repay it. As a consumer, you do not get to decide whether or not to cancel, forgive, or charge off a debt. The creditor that extended you credit owns the debt and decides how it will handle your account. The only exception would be if you file for bankruptcy, and then bankruptcy laws would regulate how the account is handled. If what the forum said was true, consumers all over the country would be cancelling their debts. This would cause creditors to stop extending credit because consumers would not be repaying what they borrowed.
If you owe a debt, the best thing you can do is to make arrangements with the creditor to pay it before it gets charged off. If the account goes into collections, then you need to make arrangements to pay the collection agency.
Bonnie Spain is the executive director of the American Center for Credit Education and Consumer Credit Counseling Service of the Black Hills. For more information, email email@example.com.
The material in this transmission is provided for personal, non-commercial, educational, and informational purposes only. ACCE makes no representations or warranties with respect to the accuracy or completeness of the contents of this transmission and assumes no responsibility for errors, inaccuracies, omissions, or any inconsistency herein. You should consult a professional where appropriate.