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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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It depends on the type of loan. Most mortgage (home) loans are of a type where the interest you pay is on the "remaining balance". It stands to reason therefore that if …you reduce the remaining balance the interest will be calculated on a smaller balance and therefore be a smaller amount.
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.
no they dont charge off car loans it would be repossed by the bank first. This is untrue. I am in this situation- the loan was charged off and the car *has not be…en repossessed*. Does anyone have an answer? Well, yes, you can REQUEST it. But you won't GET it. "Charged off" in just an accounting entry that keeps the bank from overstating its assets and anticipated income by removing loans that they do not expect to collect from their balance sheets. They still hold a lien on the vehicle and you cannot get a clear title. What some shady folks do in this situation is to get trusted shop or friend to file a mechanic's lien on the vehicle that exceeds the value of the car. So say someone has a car worth $3000 at the wholesale price, a sketchy type will get an auto shop owned by buddy or their shade-tree mechanic brother-in-law to place a mechanic's lien on the car for $3200 (for either overpriced or non-existent work) and execute the lien. Bank will not mess with claiming their stake, as the car is only worth 3K to them in addition to expenses and hassle of recovering. This is because the bank would be forced to pay the mechanic's lien of $3200 and be left with a car worth only $3000. Shop or buddy then signs the title over to the original buyer for usually a few bucks and everybody is happy except the bank.
yes a charge off loan is a collectible.
A charge-off is a tax-related matter and has nothing to do with bankruptcy. The debt is still owed.
The short answer is Yes. You do not own the car until you have fully paid for it and the lender has signed off on the lien. If you fail to make payments as agreed, your lende…r can repossess the car, sell the car again and then charge off the amount remaining. This is the most efficient way for them to cut their losses. The report to the credit bureau is a charge off, which is a ding on your credit since it does not reflect that you paid the debt in full. And, the amount may go to collections for payment. If you find yourself in a bind where you cannot pay the loan, then you cannot afford the car--make arrangements with the lender to get the best deal you can. If you are underwater on its value, then it will be difficult to end the craziness without putting more money into something you do not have the use of. The steps that are taken when an Auto loan becomes delinquent are as follows. Your lien / title holder company ie. "GMAC, Ford Motor Credit ext" ( From hear and on will be referred to as creditor) sends you your statement say $300.00. You then fail to make payment after approximately 10 days, "maybe less maybe more" will contact you by phone to enquire about the status of your now delinquent payment. "Has it been mailed out, what was the postage date, did you include the late charge (if applicable) ext." If the answer is no then the conversation will shift into "When do you plan to send payment, please include the late fee (if applicable) some creditors may be willing to take a half now and a half next week payment plan depending upon your history and circumstances. The bottom line is they want to get paid according the loan agreement and the first offence will most likely be soft served. The creditor's (CSR)customer service rep just needs a commitment to a date of payment that is all he or she is not a collector.So you provide a date (10/12/2007) and a payment amount of only $300.00 because the CSR waves the late fee. Well October 12th comes and goes and you once again fail to send payment and or to contact your creditor with an extension request and explanation. This is when the follow up letter arrives on 10/20/2007 addressing the October 12th agreement. The letter informs you of the number of days you are late and that the late fee has now been applied along with next months payment a new balance of $675.00 is due. The creditor will also include an expected payment date that will most likely be your billing date for November. "Lets say November 1st.After reviewing the new balance and experiencing whatever distressing emotions that follow, you fail to pay again. In the back ground your creditor starts to put things in to motion and you account is placed into there collections department. This type of collection is internal and in most cases there sole purpose is to get you back on track with your payments. They will first contact you by phone and try to find out why you are having trouble paying. As long as you have a legitimate reason ie, "the car has been in the shop with a recurring issue" any thing else is subject to heavy scrutiny. (Know this there state lemon laws and a federal lemon law that may protect you and your creditor if and when chronic repair issues with long time lines to identify and solve arise. This will detour your creditor from aggressively perusing your delinquent payments and in some cases they will forward the over due balance to the end of the loan term. So save all your repair documentation receipts in a safe place.So let's say you provide a legitimate explanation that the vehicle is in the shop. Your creditor forwards the $675.00 to the end of your loan extending the payment period by 2month and waves the late fee again. You soon receive a letter stating the forwarded amount and the extended term. The letter also requests your signature agreeing to the new loan term and proof of the chronic repair issue. You sign the agreement only you fail to keep all your receipts and are unable to provide a proper time line. Your creditor may or may not over look the minor gaps in the service time line. Let's remain positive say they over look the lack of receipts and solid time line. Your creditor forwards the delinquent amount and then you receive a statement in the mail on December 1st for $300.00.Again you fail to pay. Now 90 days have passed with no payment to your creditor and your records of the "alleged" chronic repair are slim to none. Your creditor now becomes a predator and the gloves come off. Aggressive collections calls come from the creditor's internal collections department and they are demanding payment in full or they will move to reposes your vehicle. The next letter from your creditor states this tragic news with a 10 day dead line. At this point your creditor will still be willing to negotiate a payment plan. Remember they want the MONEY not the vehicle that lost $5000.00 in value the moment it let the dealers' lot. But to keep this blog from going on for ever you don't agree to any payment arrangements.You have two options that come with the same credit penalty. Reposition or voluntary reposition. Uninformed people who are ignorant to credit reporting and scoring and the auto reposition industry will tell you to take the lesser of two evils and do a voluntary reposition. This is a common misconception. Understand that reposition is reposition it is scored equally on your credit and carry the same decretory penalties with time lines of seven years or more depending upon your state of residents. When the word "reposition" is lead with the word "voluntary" it only benefits the driver of the wrecker who picks up your vehicle. You creditor will post a status in there request to cease your vehicle as in-voluntary or voluntary. In the event of your creditor posting an in-voluntary status to the reposition summons the towing company may seek aid from your local law informant agency when picking up your vehicle. If the status is voluntary the wrecker will show up sometime some day at the location you disclosed to your creditor and pick up your vehicle. At this point your vehicle is taken straight to auction. It is your responsibility to request the balance due after auction from your creditor.Say the purchase price was $21,905.89 you made 4 payments totaling $1,200.00. "We will leave interest out for simplicity." At the end of the 90 days you wracked up a past due balance of $1,125.00 this includes all three $75.00 late fees. Your payment received against purchase price becomes $75.00 leaving your pay off balance at $21,830.89 before auction. I will give you the benefit of the doubt again and we will say the vehicle auctions for $8,100.00. As your creditor I originally cut a deal with you that would benefit me to the tune of $21905.89 plus an interest rate at say 5.5% totaling $12,047.75. This brings the total investment your creditor made in you to $33,953.64 at the end of you loan term. I will assume you financed your vehicle with the auto maker's bank. The dealer had, say maybe $16,905.89 wrapped up in the actual price of the vehicle when it arrived on the lot. Your loan agreement stood to make your creditor the automaker "because you used there bank" a profit of $17,047.75. Instead the deal went sour and the vehicle auctioned for $8,100.00 and the creditor is left with a profit of $8,947.75 this leaves your creditor with a negative balance of -$25,005.89 "this includes interest and late fees witch you are still responsible for.On the other hand your creditor has a tax burden and is obligated by federal law to address it with in six months of the first delinquency payment. The term used to describe, what becomes a tax credit to your creditor is called "Charge-off." In the case of a reposed vehicle your creditor will post the following to one or all four credit burros "depending on your state of residents." "Charge-off" (profit or loss) consumer account status reposition / voluntaryDepending on your state of residents. This will stay on you credit report for a minimum of seven years in accord with the Fair Credit Reporting Act.At this point your creditor has no use for the account and it gets farmed out to clearing houses that rotate the negative account through hundreds of scavenger collectors. This is where the BIG emotional problems start. Those of us how are ignorant and uninformed or don't have time to read the Fair Debit Collections Practices Act and have lawyer it could spell financial and or legal disaster.
no but you would have 2 pay it back before u die or they just take it
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.
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.
If you have a charge off or write off on a car loan and the charge off is over 7 years old who owns the title to the car?
Answer The lien holder owns the vehicle and can legally hold the title until the loan agreement is settled or paid in full.
You can get a home loan with negative items on your credit report. Provided that most items are paid off and those that aren't have payment agreements with the collection age…ncy. As long as your credit isn't too terrible, you can in most cases receive a home loan. But, you will pay for it with a higher interest rate.
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.
In Car Selling
I don't see how. I'm amazed you still physically have the car. I guess if your finance company is just being nice you could try writing to them and see if they'd send you …the title.
Yes. They usually sell your debt to another company. This new company "usually" does not have all the info and does not have the signed documents needed to win in court. The…y can be very aggressive, but will only threaten to take you to court. Some of this depends on the amount of the debt and how long it has been in collections. If they are calling you at work, ask for their mailing address and mail them and tell them to only contact you at home. If they do not follow this request, you can sue them.
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.
Not necessarily. In this state certain legal work and a bill of sale must be filled out precisely and correctly. You must get legal proof you paid off the loan. Certain taxes …must be paid. After you have jumped through all the required legal hoops, then you can get the title. Temporary tags exist to show you have met all requirements but are waiting for the title.
A co-signer is just as responsible for the auto loan as the signer is. If they did not pay then you were supposed to. That is what happens when people co-sign. The only way is… to challenge the credit bureaus. You can get the directions from each of their websites.