Creditor “Charge Off” Does Not Necessarily Mean the Debt is Gone

Some people are under the misimpression that if a creditor reports to a credit reporting bureau that a debt has been “charged off” that the creditor (or assignee of the creditor) can no longer collect on the debt.

This is false.

The reporting of a “charge off” or the issuance of a 1099 by the creditor does not affect the creditor’s ability to change their mind and sue for the debt that is owed.

Here is some background on how the Form 1099 works in the context of this issue. The Form 1099 has no impact on the contract between the borrower and the lender. If collection is resumed, the lender needs to amend the Form 1099. Here is a case discussion:

In Bononi v. Bayer Employees Fed. Credit Union, 407 B.R. 684 (Bankr. W.D. Pa. 2009), the debtor argued that the issuance of the cancellation of debt income forms meant that the creditor did not have a claim in the Chapter 7 bankruptcy. The court disagreed, writing that the issuance of the Form 1099 did not alter the creditor’ss legal right to attempt to collect the debt and it did not act as an admission that the debt was no longer due. Id. at 688,689. Bononi did order the creditor to amend the Forms 1099 issued to the debtor, which was proper, as the creditor received a distribution from the Chapter 7 bankruptcy estate.