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What is a loan charge off?
Charge off is a shortened version of "charged off to profit and loss". This accounting term describes a bookeeping entry routinely performed by creditors. While there are technical differences, for a consumer charge off is the same as a collection account. They are both derogatory defaulted debts which are due and payable in full. They show on a consumer's credit report for 7 years from the last month/year when they were paid as agreed immediately prior to default. Charged off accounts frequently are transferred or sold to collection agencies and become the target of lawsuits to recover the money owed. Answer Important to understand Charge Off is NOT a forgiveness of the debt in any way. It is only an accounting entry by the one who is owed. The discussion below, originally more on a tax Q, provides detail. Explanation Charge Offs & Forgiven Debt If what your asking is really $when a company charges off an account does it get a tax benefit$, below is more than everything you ever wanted to know, but feel free to ask more or challenge any of my answer. Lets limit this to business charging off a debt that is owed to them through some type of transaction, as non business taxes are an entirely different area. And of course, like anything to do with taxes, everything is prefaced with a $generally or normally$ as there are always special circumstances and exceptions. A charge off (or write off) is the accounting process where a business acknowledges a receivable (an asset) it believes is uncollectable effectively does not exist. It is taking the cost of not collecting that receivable as a charge against current earnings. Hence the companies net current earnings is lower than they would have been and subsequently, the amount of income taxes they pay is also lower. IMPORTANT: It does not mean the debt is forgiven, just that they can$t collect it, or some portion of it. (See below). They had an increased expense, made less money, they pay less taxes. It$s fair to say given a choice they would have preferred to have made the less net income by increasing say, salaries, medical benefits, advertising, new machinery, etc. Than essentially giving away their assets/earnings to someone else. Taking a $100 sale on credit, the company shows the $100 as income on its income statement when the sale is made and, as no cash was received, reflects it by establishing a $100 asset (due from customer) on its balance sheet. If the transaction is completed, as the customer pays the balance sheet cash account is increased by the $100, and the due from customer account is decreased $ no income effect (as that was recognized with the original posting). So, say a company sold $100 in year 1, reported the income (through the income statement) and paid taxes on it and establishes an asset for the receivable. Then in year 2 finds that customer isn$t going to pay, it will have a charge of -$100 in year 2 (reducing the balance sheet asset account, with offset to the income statement), effectively recovering the taxes it paid in year 1. While this seems fair there are, not suprisingly, a number of accounting, especially IRS tax accounting rules, that complicate it and it is not unusual at all for a company to not receive a complete or timely benefit for all of it$s charge offs. The tax rules for when an asset can be charged off are stricter than accounting). And for there to really be any benefit, the company must actually be making enough money on a tax basis in all those years. It must have taxable income and a tax it would have had to pay. If it was already losing money, paying little or no tax, losing more doesn$t get it more! But also at the State level where, the taxable income need is even greater, but another tax is frequently encountered. If that $100 also had say $6 sales tax collected and paid over to the State, the state makes recovering that $6 that was in reality never collected, very difficult, near impossible. (Note that the $6 is normally NOT part of the company$s income or sales but a collection in trust for the State and paid over on behalf of the customer). I think you would be hard pressed to call the above a benefit! The one not paying (who still owes and will forever owe the money), actually receives all the benefit, by basically enriching themselves through a theft. (Walking out and agreeing to pay, then not doing so is really very similar to simply walking out with out paying). However, there is another consideration: What happens if the debt (or some portion) is forgiven? Lets start with a basic tax concept: If you receive something of value (remember we$re talking in business, so from someone other than family), you have received a taxable income. (The one giving it rightfully has an expense). For example, remember the Oprah Winfrey thing where the audience got cars$and then found out they owed taxes on the value of the cars. In fact, when Oprah stepped up to pay the tax for them, she had to actually pay more than the tax on the car, (called a gross up), as the money she gave them to pay the tax is also taxable. Hand in hand with that, and the example above, if you get a loan, it is NOT taxable income. The money was exchanged for the equally valued promise to repay. So taking the example above, if a buyer receives the $100 merchandise and gives $100 value for it, obviously nothing income taxable to the buyer. But in this case the buyer receives the $100 of value and say makes a deal in year 2 that if the $100 promise it gave is forgiven for a payment of $75 sent today (frequently offered with words like $$because it$s all I have and otherwise you ain$t getting nothing$.$), then the $25 is considered a cancellation of indebtedness. COD income is taxable to the recipient. It isn$t a loan/exchange of value anymore, it$s a gift of value, and value, as in Oprah is taxable. While no one likes to pay tax, it is the correct outcome. The advantage is the debtor doesn$t owe anything anymore$other than tax on the gift. This COD is a very big issue in major corporation financial reorganizations. When these companies financially restructure (Chapter 11 Bankruptcy), and creditors, generally Bondholders, agree to take less than the bond was issued for$and we are talking billions of dollars here frequently, the company has COD income of the amount forgiven.
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There is dialouge that indicates how you should contact the creditor that has charged off the account, and indicate that you wish to settle the debt, though charged off, in ex…change for a written promise to correct your credit report. There is even a form letter you can modify for your own use. You can contact a debt consolidation agency that would deal with your creditors on your behalf.
Answer you can still go to the company and pay it off . in return they contact the credit bureau to update the info. keep all paperwork just in case you ne…ed to make corrections to your file. i went for years without being able to pay a hospital bill then paid it. sure enough it was corrected on credit file.
Answer An FHA loan would require that any outstanding collection accounts, judgment[s] and charge-offs be paid off in full before closhing your loan but not… necessarily before approving your loan. The lender will look mostly at the last two years of your credit history.
Answer What POSSIBLE motivation would the bank have to give you the title? Charging off the loan is their way of letting the investors know that they never expec…t to get the money back. They consider you a deadbeat and a cheat so it's higly unlikley that they will be doing you any favors.
Answer After you pay off a loan, the title is usually sent to you, and leins are dropped. This will vary from instance to instance though. Ask your loaner.
It will show on your credit report where your bank loan was "Charged Off". This means the bank wrote off the money and gave up on collecting it. However they can sell that deb…t to a collection agency to try and collect it. It will show on your credit report for 7 years.
What do you mean by "fix" it? Do you want this taken off of your credit report? Was the loan legitimately charged off? Do you still owe a balance on the loan? If yo…u have a legitimate charge off reported on your credit report, it cannot be legally removed. If you owe a balance and the charge off is recent, paying off the balance could help. However, the charge off will still show on your credit report for 7 years, and only time will remove it. Still, if you keep your credit in good shape otherwise, the charge off will hurt you less and less as time goes by. Read more about your credit report and score in the link below.
Its' when a creditor/lender closes your account due to non-payment. This process takes place for tax purposes (so it's not a complete loss to the creditor/lender).
journal entry to write off a loan
When a customer is unable to pay of the auto loan the lender will repo the car, sell it, and charge off the remaining amount due to the customer. The exact amount charged off …may vary depending on the lender. In the case of a repossession, unless it is a Bankruptcy, the remaining balance is DUE BY THE CUSTOMER. It is important to note, in the case of a bankruptcy, any money that is discharged through the bankruptcy can, at anytime, actually be paid back to the creditor and that negative report will be taken off of your credit report. If someone finally gets into the position that they can actually pay a debt off, it is better to do so.
yes a charge off loan is a collectible.
Presuming your the lender - you may be able to deduct the value of the asset that has no longer any chance of being recovered. Also, if you already recognized any income… (under your accounting method) that you paid tax on and then didn't actually receive, you can take that too. Obviously, all the documentation requirements and all events tests must be met, and you must have income of the right type and time to use the expense against. Small compensation...lose $1 and maybe, if you can, get a 25c tax break and maybe return of tax you previously overpaid.
They will repossess then will sell in a private auction if they do not get what is owed on the property you will have to pay the remainder balance. Trust me going through that… one right now guess that is what i get for being a nice relative and co-signing on a loan for a car.
no but you would have 2 pay it back before u die or they just take it
Absolutely, and in most cases it will be!