Legal Question in Credit and Debt Law in California
debt settlement
What does it mean to ''charge off'' a debt? Does this mean that the debt is no
longer legally valid or only that a particular creditor has decided to cease
pursuing collection activity and recognize the face amount as an
accounting loss. Can creditor do this and still assign the debt to another who
will try to collect? Does the proceeds from this sale reduce the accounting
loss?
If this occurs, and the debtor subsequently wants to settle the debt, how can
he locate the assignee, detremin his purchase price and what legal
documents should be requested to verify the assignees' legal claim.
1 Answer from Attorneys
Re: debt settlement
The creditor must charge off the debt in order to deduct it from their tax return as a bad debt. That does not extinguish the liability of the debtor, and they can continue to attempt to collect the obligation, including lawsuit if still within the statute of limitations.
If they collect any portion of the debt, they must then report the income on their tax return.
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