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We accept Bankruptcy cases in these counties: Los Angeles County, San Fernando Valley, Orange County, San Bernardino County, Riverside County, Ventura County and Santa Barbara County.

What’s the Difference Between a Debt Discharge and a Charge-Off?

The terms discharge and charge-off seem similar, and you might think they can be used interchangeably, but their meanings are very different from one another. If you’re going through a bankruptcy, it’s important to know what each means, and how it applies to you and your credit.

What is a Discharged Debt?

According to South Carolina Tax Lawyer, in reference to bankruptcy, a discharge releases the debtor from personal liability for certain specified types of debts. This means that a debtor is no longer legally requires to pay off any debts that have been discharged. Once a debt has been discharged, it is permanent, and creditors are legally prohibited from attempting any form of collections on that debt. That means no phone calls, letters, emails, or any form of communication or legal action.

However, even though a debtor is not personally liable for any discharged debts, any property with a lien against it that has not been avoided may still have action taken upon it. In other words, you may be cleared of any debt is regards to a car loan, but that car may still be repossessed.

The timing of a debt discharge will depend on the type of bankruptcy being filed. A chapter 7 bankruptcy, for example, may only take a few months to have a debt discharged, while chapter 12 or chapter 13 bankruptcies may take 3-5 years.

What is a Charge-Off?

A charge-off, which is not directly related to bankruptcy at all, is when a creditor declares a debt as unlikely to be paid. Credit card debts, car loans, and mortgages can all be charged-off if no payments have been made for some time. Different debts will have different periods of time before they get charged-off. For credit cards, that period is usually 180 day, while car loans can be charged off at 120 days.

Once a debt is charged-off, it is usually sent to collections, and the debt is still owed by the debtor. There is an entire industry built around collecting charged-off debts, including debt collectors, debt buyers, and collection lawyers. These businesses will buy a debt from a creditor for pennies on the dollar, and then pursue the debtor relentlessly in an effort to have that debt paid off.

For example, a debt collection company may buy a $5000 credit card debt for as little as $2000, which is $2000 more than the credit card company ever expected to get from the debtor. The debt collector will then track down and contact the debtor, frequently and aggressively, urging them to pay the debt.

Having a charge-off on a credit history will heavily impact a credit score, and is one of the worst factors that can be listed on a credit report. It will greatly effect any future loan applications, and decrease the likelihood of creditors lending money in the future.

The purpose of a charge-off is for the creditor to file for a tax deduction for bad debts, under Section 166 of the Internal Revenue Code. For creditors, bad debts and fraud are a part of doing business, and a debt charge-off is one of the tools used to deal with them.

California Bankruptcy Attorneys

If you would like more information regarding bankruptcy in California, please visit our Ultimate California Bankruptcy Guide. If you’re thinking about filing for bankruptcy, or if you have any questions about your situation, and how we can help you, please contact us today. We understand that no two bankruptcies are the same, and the details of your case matter. Together we can help you protect your assets and navigate the complicated California bankruptcy process.