A charged-off debt is a type of debt that a lender or creditor has written off as unlikely to be collected. This typically happens when a borrower has not made payments on a debt for a certain period of time, usually around 180 days or more. At this point, the lender or creditor may declare the debt as a loss on their financial statements and may charge it off.
However, just because a debt has been charged off does not mean that the borrower is no longer responsible for paying it. The debt may be sold to a collection agency or other debt buyer, who will continue to try to collect the debt. Additionally, a charged-off debt can have a negative impact on a person's credit score and financial history, making it harder for them to borrow money in the future.
A cancelled debt, also known as a forgiven debt, is a debt that a lender or creditor has agreed to discharge or write off, which means the borrower is no longer obligated to repay the debt. This can happen for a variety of reasons, such as if the borrower is facing financial hardship or if the creditor agrees to a settlement offer.
However, even though the borrower is no longer required to repay the debt, the IRS may view the cancelled debt as taxable income, which means the borrower may be required to pay taxes on the amount of the debt that was forgiven. There are some exceptions to this rule, such as if the borrower is insolvent at the time the debt is cancelled or if the debt is related to a qualified principal residence.
Cancelled debt and charged-off debt are two different concepts, although they can be related in some cases. While a charged-off debt can sometimes lead to a cancelled debt if the creditor agrees to forgive the remaining debt after the charged-off amount has been recovered or if the borrower negotiates a settlement, they are not the same thing. Cancelled debt is a result of an agreement between the borrower and the creditor to discharge the debt, while a charged-off debt is a result of the creditor's decision to declare the debt as unlikely to be collected.
It's important to note that cancelled debt can have an impact on a borrower's credit score and financial history, as it can be reported to credit bureaus as a negative event, just like a late payment or default. For more info, contact us at info@tariqlaw.com, or submit a case review request.
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