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Our Loan Charged Off But They Still Want to Collect It. Can They? – Suzie

“Dear Steve,

We have a modified first on our home. The second mortgage has been turned over to a collection agency as it was “charged off” by the bank. We have an equity line of credit with a balance and we have not heard from them. This has been ongoing for more than a year. We are not flakes and want to settle our debts as best we can.

What power does the collection agency have if the loan has been charged off? Can they foreclose? We want to settle the loan for a one time payment, but they are holding out for a large down and payments that we can’t afford forever, reviewed on an annual basis. The agency won’t provide in writing any new agreement. They say if we don’t settle, the loan will go back to the bank’s attorney’s. Is that true if the bank has already charged it off? What power do we have to come to an agreement that works for us?


Dear Suzie,

When a lender “Charges Off” a debt it is only an accounting function. It does not eliminate your obligation for the debt.

The creditor could sue you, go for a judgment, place a lien against your property, garnish wages, or anything else permissible by law.

You have no power to force them to do anything, except bankruptcy. Under bankruptcy the loan would be discharged and that would be that. You can click here to find a local bankruptcy attorney.

The best way to resolve this situation is either to negotiate a mutually agreeable repayment, go bankrupt, or wait to see what action they take against you.

Please update me on your progress by posting updates here in the comments section of your question. I’m very interested in how this works out for you.


You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.

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About the author

Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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