Legal Question in Credit and Debt Law in California

The lender's charge-off or tax treatment does not impact your obligation to pay the loan. In particular, it is not considered a forgiveness of the loan or a waiver of the right to collect. A defense based on this line of credit is meritless.

You have no idea what has transpired between the original lender and any bad debt buyers. If they in fact sold it, rather than turning it over for collections without selling the debt, AND if it was paid in full to the new owner of the debt, then the original lender cannot collect. But if the just turned it over for collections, without selling the debt, and it was not paid off in full, they can still collect the balance. Also if they sold it, and it was not paid in full, they can buy it back and collect any amounts unpaid. As for writing it off, that is an accounting exercise that as Mr. Perry notes, has NOTHING to do with your obligation. They took a charge off for it, most likely for tax purposes, and now if they collect on it they will have to recognize it as new income rather than debt collection. That's between them and the IRS, not you.