When debt becomes overwhelming, sometimes the choices become between bad and worse.  This article explains the consequences of three unfortunate situations – unpaid charge-offs, paid charge-offs, and judgments.  These options for debt resolution are all unappealing, but if you understand the consequences, you may be able to figure out ways to deal with your difficult situation. 

Unpaid Charge-offs

 When a lender writes off a debt because the debt is so old that they do not believe you will pay it, they call this an unpaid charge-off.  Usually this happens when a debt is about 180 days overdue, though time limits for charge-offs vary from lender to lender.  This does not mean you are no longer responsible for the debt, just that the lender no longer has faith you will pay it.  The lender no longer considers the money they lent you an asset, so they charge it off for a tax deduction. Typically unpaid charge-offs are sold to collection agencies who will pursue you for payment.  If you still do not pay the debt, they will take you to court where the debt may become a judgment.   

Judgment

 A judgment is a legal term for a ruling on a debt, often connecting to wage garnishment or a lien on property or an asset.  This means you cannot sell the property or asset until you settle the court order paying the amount levied against you in response to the unpaid debt.  This includes the amount of money you owe on the debt plus any legal fees and damages the court decided you owe the lender. 

Paid Charge-off

 If you decide to make good on the debt you owe and you pay a debt after it has been charged-off by the lender, your credit report will record this as a paid charge-off.  If you have negotiated with the lender, you may even get them to record a statement such as “paid as requested” or “paid to satisfaction”, lessening the damage done to your credit record.  

Debt Resolution Options

 All three of these debt-resolution options – unpaid charge-offs, paid charge-offs, and judgments, are terrible for your credit report.  The most damaging to your credit rating is the judgment, followed by the unpaid charge-off.  Lenders are likely to be wary about lending money to you, and most loans or credit cards you will qualify for will carry extremely high interest rates since having these types of things on your credit report marks you as a high-risk borrower.  You may only qualify for sub-prime loans and other high interest credit accompanied by high fees. It’s wise to do everything you can to avoid having any of these three things end up on your credit report.  Keep in mind the fact that thirty five percent of your credit score is determined by if you pay your debts on time, so do your best to reliably make payments on time.  If necessary, contact your creditors and negotiate for a hardship suspension of payments or request temporary lower payments before you end up with a charge-off or judgment on your credit report.