When a bank account remains at a negative balance for a significant amount of time (determined by the Financial Institution at which the account is housed) the bank will close the account and "charge off" the negative balance. They will report the negative balance to a collection agency to try an recover the funds from the account holder.
Charged off accounts are past due accounts that a creditor such as a bank , lending institution or medical care provider have on their books that are delinquent.
What usually happens is that the creditor removes the accounts from their accounts recievable portfolio in an order to change the bottom line on the financial statement. Just because the accounts are charged off does not necessarily mean that they are written off, it merely means that they have removed them from their books.
Charged off accounts are usually placed with a third party collection agency for resolution. In some cases the agency will litigate and obtain a judgment for the amount due including the fees that were paid to obtain the judgment. Usually judgments earn interest that is set by a state guideline. Each state is different on the fees and the interest.
In some cases and also becoming more prevelant is the sale of a charged off portfolio to a third party that purchases the debt at a reduced rate and then attempts to collect the debt at full face value. In most cases the debt purchaser is granted the same rights as the original creditor including the ability to charge interest and penalties that were part of the original agreement.
In any event, if the debt is still in statute and has not been discharged in bankruptsy it is still valid and due wether it is being collected by a collection agency or debt purchaser. If there is a judgment obtained the statute of limitations is increased due to the laws regarding judgments usually a judgment is good for 7 - 10 years and renewable for consecutive terms
Salvatore Mattiaccio
President
The Lakeland Group, Inc.
P.O. Box 20
Sparta NJ 07871
(973) 729-2372