If an account is charged off, why would a judge dismiss that case in court?

UPDATED: Dec 28, 2011

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If an account is charged off, why would a judge dismiss that case in court?

Basically I saw a case dismissed before before mine because it was labeled an “internal charge-off.” At the time when my case came up I wasn’t sure whether my account had been charged off but I did have a credit report and thought that it was. Because I didn’t know I settled for an amount that’s really not going to be workable in payments; I feel like I shouldn’t be paying them anything since I’ve paid 6-8 times the original loan amount. If I don’t pay the settlement amount, can a court enforce a judgment against a charged-off account? In other words, are all charge-offs judgment proof?

Asked on December 28, 2011 under Bankruptcy Law, Pennsylvania


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 11 years ago | Contributor

When an account or debt is truly charged off--that is, it's not merely that the creditor has essentially given up on it, but rather that it has actually been taken as a loss--it no longer exists. That is because the creditor formally and finally gives up any chance of collecting it and reports it as a loss on its taxes, thereby getting a tax benefit. Since a debt can't simultaneously be written off for tax gain and pursued, the creditor is precluded from collecting on it.

The problem for you is that even if the debt has been written off, you have entered into an agreement to pay a certain amount; that agreement is now a contract between you and the creditor and is itself enforceable. If you default on the agreement, the creditor will sue you on the agreement, not on the underlying debt, and a court is likely to enforce that agreement.

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