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Reader Question: Capital One Charge Off

Lee, 


I became unemployed and fell behind on bills. The last priority was credit cards.I talked and worked with these companies the whole time. Luckily, I became employed once again. I joined a legitimate credit counseling service to setup payments. Capital One accepted the counseling services agreement. I have been making payments for a number of months on time and without issue. I recently checked a copy of my credit report, one of the free ones we are entitled to each year. I noticed that Capital One had reported my account as charged off. I called them to confirm this and the representative I spoke with said that was indeed the case. I inquired why it was charged off when I was on an agreement repayment plan. She really had no answer for that but said that there was nothing she could do about it.  

I am in a repayment plan for an account I have already been charged off on. Should I stop the payment agreement? Is there any mechanism or circumstance in which the credit card company can recall my debt? Is there anything I can do to urge them to do this? Why and under what authority are they still accepting my payments if indeed my account has been charged off? Should I not be entitled to a full und of these payments?

What I would like to happen is for the credit card company to recall the debt so that I can pay it off and for it not to appear as a charge off on my credit report. Any thoughts, ideas or suggestions would be greatly appreciated. 

Robert 


Robert,

I think most of your questions will be answered by me explaining how a charge off works. When a credit card company charges off your account, it generally sends the account to the companys collection department or sells it to a third party agency. Charge offs occur without fail once you go 180 days without making a payment. A charge off does not mean that the company has discharged the debt and you no longer owe it. Capital One still owns your debt and you still owe it. It just appears in a different place on the companys profit and loss statement this year.

Capital One is still accepting payments because they still own the account. They dont owe you a und because you still owe the debt, regardless of how the debt appears in the company paperwork or on your credit report. Sounds harsh, I know, and I dont mean to be. Just trying to explain how the system works.

The company cant "recall" the debt in the sense that they can retrieve it from a third party because it never went to a third party. They can remove the charge off from your credit report, no matter what they say. Any company with a contract to report information to the credit bureaus has the right to modify or delete that information. Its unlikely, however, that Capital One would modify your credit report and remove the charge off. Not only is it accurate, but theyre receiving regular payments from you. What incentive do they have to modify the account? None.

Thats not to say that you should stop paying the credit card company. Your regular payments are the only thing preventing that charged off account from being turned over to a collection agency. If your account were to get turned over to a collection agency, the collection agency would make yet another note of the debt on your credit report and your credit would suffer further.

Original creditors like Capital One typically only modify credit information in the event they made a mistake. Even if you were to stop paying and offer to resume payments in exchange for a removal of the charge off, the company is more likely to sue you than to remove the charge off from your credit report.

Per federal law, the charge off will disappear on its own 7 years from the date it was charged off. Unfortunately, the charge off doesnt disappear after you pay off the debt in its entirety. The credit card company is required by law to update your credit report to lect the debt was paid once you pay it off. A paid charge off, however, is just as bad for your credit score as an unpaid charge off.

Its a shame that responsible people such as yourself who try to do the right thing and pay their bills have to suffer the same consequences they would have suffered had they simply left the debt alone. You have a small advantage in the sense that you dont have to deal with a collection agency damaging your credit report and harassing you all day and night.

So grit your teeth and keep making those payments until the debt is paid off. The older it gets, the less negative impact it will have on your credit scores.

Now, if you never stopped making payments on the account, it should not have been charged off – regardless of the fact that you were enrolled in credit counseling. If that were the case, the charge off is a legitimate error that Capital One has to address. In that case, I recommend you get the name and contact information for a senior account manager and send a polished, professional business letter explaining that your account was charged off in error and ask that he remedy the situation. Letters always seem to work much better than telephone calls. Best of luck to you.

Lee