How Do Banks Write Off Credit Card Debt?

Written by robert lee
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The New York Times reported in January 2009 that banks and credit card companies were expected to write off £256 billion in defaulted credit card debt over a five-year period starting in 2009. Write-offs entitle banks to tax breaks on their corporate tax returns, but the credit card holder remains liable for the entire debt.

Collection Efforts Continue

Banks and debt collection agencies can pursue you for the rest of your life for a credit card debt that was written off. There are state laws, called state statute of limitations, that place limits on how long debt collectors can pursue you in court. However, the debt itself never expires, making it possible for a debt collector to call you about a credit card debt that was written off 20 years ago.

Credit Reports

Negative information about credit card debt must be removed from your credit report after seven years. State statute of limitations laws vary by the state, but the average is about six years. Some people with extremely old debts simply choose to ignore them once they no longer are appearing on credit reports and the debt collector cannot successfully sue because the statute of limitations has expired.


Before writing off your account as a bad debt, the credit card company lists it as charged off. Charge-offs appear on your credit report and make it difficult for you to receive new credit at competitive interest rates. The charge-off is just an internal accounting term for the bank and also does not end your responsibility for the debt. Charge-offs generally occur when your account is six payments behind, according to MSN Money. Once the account is closed and charged off, it is listed as a write-off for tax purposes. There is little you can do to reverse the damage to your credit except to continue paying your remaining debts on time while keeping balances low. Your credit score will recover with the passage of time.

Paid Charge-offs

Paying the charge-off doesn't help your credit score significantly unless you convince the card company to remove the negative credit information from your credit report. Some people with written-off debt contact card companies to negotiate payment arrangements called "pay-for-delete." In this arrangement, the card company removes charge-offs in exchange for full payment. However, credit card companies are not obligated to agree to such an arrangement and most won't. The Bankrate website reports it is still a good idea to pay old charge-offs, because your credit reports will be updated to show the charge-offs as paid. That may not improve your credit score, but it will show potential creditors that you are trying to repair past mistakes.

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