Ask Liz Weston

Get smart with your money

charge-offs

Wednesday’s need-to-know money news

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siblingsToday’s top story: What happens when couples disagree on the right time to retire? Also in the news: Bad financial habits you could be passing on to your kids, understanding charge-offs, and how to avoid extra costs when renting a car this summer.

When couples disagree on when to retire
Hot to reach common ground.

5 Bad Financial Habits You May Be Passing On to Your Children
Not the kind of legacy you want to leave.

I Paid My Debt. Why is it Still ‘Charged Off’?
Understanding your credit report.

7 Costly Car Rental Mistakes to Avoid
Don’t pay more than you already have to.

10 Terms You Need to Know If You Ever Plan to Retire
Becoming familiar with the vocabulary of retirement.

Does charged-off debt disappear?

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Dear Liz: I understand that creditors eventually write off unpaid debts and receive a federal tax deduction for the loss. Then they sell that “debt” to a collection agency. However, isn’t the debt rendered void by the fact the original creditor charged it off and got the deduction? So how can collection agencies attempt to collect an invalid debt?

Answer: Charging off a debt and taking the tax deduction for the loss indicates the original creditor doesn’t believe it can collect the money. That doesn’t render the debt invalid or erase it in a legal sense. Debts typically exist until they are paid, settled or wiped out in Bankruptcy Court.