Quick Summary: Yes, you can be sued for a charged-off debt. A charge-off does not mean the debt is forgiven. It means the original creditor gave up on collecting and wrote it off as a loss, but they can still sell the debt to a collection agency or sue you themselves. If the creditor wins a lawsuit, they can garnish your wages or freeze your bank account. Your main protection is the statute of limitations, which limits how long creditors can sue.
What Does “Charged Off” Mean?
A charge-off happens when a creditor decides you’re unlikely to pay and writes the debt off as a loss. This usually occurs after about six months of missed payments. The creditor reports the account as “charged off” to the credit bureaus.
Many people think “charged off” means the debt is gone. It doesn’t. You still owe the money. The creditor has simply stopped expecting you to pay under the original terms.
After a charge-off, one of two things typically happens:
- The original creditor keeps the debt and may sue you or send it to their internal collections department
- The creditor sells the debt to a third-party collection agency, which then owns the right to collect (and sue)
Either way, someone still wants the money and has the legal right to pursue it.
Can You Be Sued for a Charged-Off Debt?
Yes. A creditor or collection agency can sue you for a charged-off debt, whether it’s credit card debt, medical bills, personal loans, or other unsecured debt.
If they sue and win, the court enters a judgment against you. That judgment gives the creditor powerful tools to collect:
- Wage garnishment (taking money directly from your paycheck)
- Bank account freezes or levies
- Liens on your property
If you don’t respond to the lawsuit, the creditor gets a default judgment automatically. That’s why it’s important to respond even if you think you can’t pay.
What Is the Statute of Limitations on Charged-Off Debt?
The statute of limitations is a deadline for how long creditors can sue you. Once it expires, the debt becomes “time-barred.” Creditors can still ask you to pay, but they can’t take you to court.
The time limit varies by state and debt type. In New York, the statute of limitations on most consumer debts is six years. Other states range from three to ten years.
Important: The clock usually starts from your last payment or last account activity, not from when the debt was charged off. If you make a payment on old debt, you might restart the clock and give creditors more time to sue.
If a creditor sues you for time-barred debt, you can use the expired statute of limitations as a defense. But you have to raise this defense yourself. The court won’t do it for you.
How Does Wage Garnishment Work After a Charge-Off?
A creditor can’t garnish your wages just because you owe money. They need a court judgment first. Here’s how the process works:
Step 1: The creditor sues you. They file a lawsuit claiming you owe the debt.
Step 2: The court issues a judgment. If you don’t respond or the creditor proves their case, the court rules in their favor.
Step 3: The creditor requests garnishment. With a judgment in hand, they ask the court for a garnishment order.
Step 4: Your employer withholds money. The court sends the order to your employer, who must take money from your paycheck and send it to the creditor.
Federal law limits garnishment to 25% of your disposable earnings or the amount your weekly pay exceeds 30 times the minimum wage, whichever is less. Some states have stricter limits that protect more of your income.
How Does a Charge-Off Affect Your Credit?
A charge-off is one of the most damaging things that can appear on your credit report. Here’s what to expect:
Major credit score drop: A charge-off can lower your score by 100 points or more, depending on where you started.
Stays on your report for 7 years: The charge-off remains visible to lenders for seven years from the date of your first missed payment.
Makes borrowing harder: Lenders see charge-offs as a major red flag. You may be denied for new credit cards, loans, or even apartment rentals. If you do get approved, expect higher interest rates.
Doesn’t disappear when paid: Paying a charged-off debt updates the status to “paid charge-off,” which looks slightly better but still hurts your credit. The account history stays on your report.
What Are Your Options for Dealing With Charged-Off Debt?
If you have a charged-off debt, you have several ways to handle it:
Check the statute of limitations. If the debt is old enough to be time-barred, you may not need to pay it. A creditor can’t sue you for time-barred debt, though they can still ask you to pay voluntarily.
Negotiate a settlement. Creditors and collection agencies often accept less than the full amount. You might settle for 40-60% of what you owe, sometimes less. Get any agreement in writing before you pay.
Set up a payment plan. If you can’t pay a lump sum, ask about monthly payments. Smaller regular payments may prevent a lawsuit and show good faith.
Dispute errors. If the debt isn’t yours, the amount is wrong, or there are other errors, you have the right to dispute it. The Fair Debt Collection Practices Act gives you protections and requires collectors to verify the debt if you ask.
Talk to a debt relief attorney. An attorney can review your situation, explain your rights, and negotiate with creditors on your behalf. If you’re being sued, legal help is especially important.
Get Help With Charged-Off Debt
A charge-off can feel overwhelming, especially if collectors are calling or you’re facing a lawsuit. But you have options and rights. A debt relief attorney can help you understand where you stand and what steps make sense for your situation.
Tayne Law Group has over 20 years of experience helping people deal with debt collection, negotiate settlements, and respond to lawsuits. Call (866) 890-7337 for a free consultation, or fill out our short contact form. All conversations are confidential, and we never share your information.
Frequently Asked Questions
Does a charge-off mean I don’t have to pay?
No. A charge-off means the original creditor stopped expecting payment under the original terms, but you still owe the debt. The creditor or a collection agency can still pursue you for payment and can sue you if the statute of limitations hasn’t expired.
How long can a creditor sue me for a charged-off debt?
It depends on your state’s statute of limitations. In New York, creditors have six years to sue for most consumer debts. The clock typically starts from your last payment. Once the statute expires, the debt is time-barred and you can use that as a defense if sued.
Will paying a charged-off debt improve my credit?
Slightly. The status changes from “charge-off” to “paid charge-off,” which looks better to some lenders. However, the account history stays on your credit report for seven years from the first missed payment. Paying won’t remove it early.
Can I be sued for a very old charged-off debt?
If the statute of limitations has expired, you can’t legally be forced to pay through a lawsuit. However, some collectors still try to sue for old debt. If this happens, you need to respond to the lawsuit and raise the statute of limitations as your defense.
Should I ignore collection calls about charged-off debt?
Ignoring calls won’t make the debt go away. If the statute of limitations hasn’t expired, the collector could sue you. It’s better to understand your options: check if the debt is time-barred, consider negotiating a settlement, or talk to a debt relief attorney about your rights.
