Federal Statutes on Overdue Accounts.

If you look on your credit report and you see months of 120 day late postings, the creditor may be in violation of Federal statutes.  Reporting an account as late for extended periods of time is cut off depending on the type of debt.  Federal regulations require creditors to charge off installment loans (e.g., cars, personal loans) after 120 days of nonpayment, and after 180 days for revolving accounts (credit cards).

For the consumer, what this does is prevent continuous damage to their credit on a monthly basis ad infinitum.  It helps stop the bleeding of your scores to a certain extent. Even though a charge off status (generally denoted as an “R9” on your report) could have a large impact on your score, it paves the way for the healing process of your score as it usually is not a reoccurring monthly update like a 120 update would be.

Note that a charge off status does not mean you don’t owe the money.  A charge-off status is an accounting term- it does nothing to the contract you (should) have signed at the onset of the relationship which bound you financially.  If you notice that an account is charged off, it is still a collectible account until state statutes have been exceeded.

Lastly, note that neither the charge off date nor the resale/assignment date of the debt (to a collection agency) has an impact on the state statutes of limitations on how long you have a legal financial obligation to the debt.  This date always starts on the last date of payment activity by you, the consumer.  This clock can be reset by subsequent payments and admitting of ownership to a debt.  For that reason, you want to make sure you understand your rights and legal obligations therein before you make a payment for a charged-off debt or engage in too much conversation with the collection agency about the debt.

Make the Choice.  Make the Change.  Delta.