credit cards

Charged-off credit card still issuing fees

Steve BucciDear Debt Adviser,
Can a credit card company still report an account that was charged off in March 2009 as late and fees still adding up? Thank you.
-- Carlos

Dear Carlos,
You betcha! And why not? You still owe the money even though the debt has been charged off and they still want to be paid. The card issuer is within its rights to report your account's accurate status to the credit reporting bureaus each month. Let me explain why.

When you apply for a credit card, you sign or agree to a cardholder agreement with the bank that issues the card. The cardholder agreement is a contract with terms and conditions that are still applicable and enforceable even after the account has been charged off by the card issuer. A card issuer will typically charge off an account when no payment has been received on the account for more than 180 days. A charge-off is merely an accounting procedure that requires the bank to move the account from an asset to a liability. It's their way of saying that they have doubts about you ever paying your debt. It doesn't affect their heartfelt hope and desire that you "will" pay your account. So, the charge-off does not affect the original cardholder agreement, and you still owe the money. Your account was likely closed by the card issuer when you fell behind, but closing the account still doesn't end the contract.

What that means for you is that any fees that were included in your cardholder agreement will be assessed on your account as long as you still have a balance due on the account. Late and over-the-limit fees can and will be applied to your account if you are not making payments on time and if your total balance is more than your credit limit on the account. Also, interest charges as set forth in your cardholder agreement will be added to your account each month. At this point, with no payments received your penalty interest rate is most likely at 29 percent or more. But wait, there's more ... if there are any legal fees or court costs incurred to collect the account, you get to pay those, too.

The account will not drop from your credit report until March 2016, or seven years from the date the account was charged off. Even then, you'll still be on the hook for the debt. However, how the account is reported is the least of your worries. It is quite likely the creditor or a collector will have you in court and go after your wages, particularly if you have a large balance due on the account.

You can check the statute of limitations in your state for collecting a debt using the courts. My guess is that if you have not heard from a collector yet, you will before you cross that statute of limitations threshold. Many states have a four- to five-year statute for collecting credit card accounts. You are nearing the four-year mark. Should the limit be three years or less in your state, the collector cannot legally use the courts to collect because the debt is older than three years. If you are called into court on an expired debt, you still must appear or submit paperwork, whichever is required, informing the court of your statute of limitations defense.

Should the statute in your state not yet be expired and as interest rates and fees are continuing to be added to your account, I suggest you work out an affordable payment plan with the creditor sooner rather than later. If that's not possible, I suggest you speak to a lawyer or a nonprofit credit counselor to explore your other options.

Good luck!

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