Bank Account Charge Off: What It Means and How to Recover
Having your bank account charged off can be an alarming and frustrating experience. This negative status happens when you’ve fallen significantly behind on payments or violated your account agreement.
In this comprehensive guide, we’ll explain what a bank account charge off means, how it occurs, the consequences, and most importantly – the steps you can take to potentially get your account back in good standing.
What is a Bank Account Charge Off?
A bank account charge off takes place when the financial institution removes the outstanding negative balance from their receivables and classifies the account as a loss. This typically happens after 180 days of non-payment on the overdrawn amount.
It’s essentially the bank’s way of accepting that the account holder has defaulted on the debt obligation and that they likely won’t be able to collect. So they write it off from their books for accounting and tax purposes.
However, this doesn’t mean the debt legally goes away. The bank can still attempt to recover what’s owed through collections. A charge off just means they don’t anticipate being paid back based on your history of delinquency.
Some key things to know about bank account charge offs:
- It’s triggered by an overdrawn balance going unpaid for an extended period (often 180 days)
- The bank removes the negative balance owed from their financial accounts
- Your account will be closed or frozen with funds inaccessible
- The defaulted debt is handed over to collections and credit bureaus are notified
- You are still legally obligated to repay the charged off amount
- Significant credit score damage is likely from this negative status
So in summary, a charge off closes the account due to non-payment of funds owed and turns collection of the debt over to a third-party. The unpaid amount does not vanish into thin air though.
How Does a Bank Account Get Charged Off?
For a charge off to occur, your bank account first needs to reach a significantly negative status from overdrafting, returned items, or insufficient funds fees. Some potential scenarios include:
- Writing checks or scheduling electronic payments for more than your available balance
- Having recurring debit card transactions go through despite lack of funds
- Depositing fraudulent, bad, or reversed checks into your account
- Getting hit with multiple overdraft fees that spiral out of control
- Having a deposited check bounce after withdrawing the “available” balance
- Experiencing account theft and fraud that drains the balance
Banks will usually allow an account to remain in overdrawn status temporarily. However, if the account stays negative for a prolonged period with no deposits or payments, the charge off process will kick in.
After 30 days overdrawn, the bank will issue past due notices and make attempts to contact you demanding repayment. Once it hits 120-180 days with no resolution, they will likely stop warning notices and just charge off the balance.
At this stage, they classify the debt as a loss and close the account. Any funds deposited after this point may get applied to the negative balance or returned.
The timeframe varies by bank and situation, but going 100+ days overdrawn almost assures at some point the account will get charged off. It’s best to address issues promptly before reaching this serious stage.
Consequences of a Charged Off Bank Account
The impacts of having your bank account charged off can be significant and long-lasting if you don’t take corrective action:
Once charged off, your bank immediately closes the account. Any remaining positive balance likely gets applied to the negative amount. You can no longer access the account or open another one with that bank.
Credit Score Damage
The charge off and closed account will be reported to the credit bureaus. This causes severe harm to your credit score, lowering it as much as 200 points from this single negative item.
Debt Sent to Collections
The bank removes the uncollected debt from their books and sells or assigns it to a collection agency. These agencies aggressively pursue repayment through letters, calls, and lawsuits.
You remain legally obligated to repay the charged off debt. The bank or collection agency can take legal action like lawsuits or wage garnishment if it remains unpaid.
No Banking Access
Good luck opening an account at another bank with a recent charge off on your record. Most banks will reject applications for several years after this default.
You will likely face classification as a high-risk customer. Expect to pay account fees, high interest rates, and have trouble accessing loans if you do get approved.
As you can see, a bank account charge off creates significant hardship from damaged credit, collections harassment, legal liability, and loss of normal financial services.
How Long Does a Charge Off Stay on Your Report?
This negative status remains on your credit report for seven years from the date it reaches charge off status. However, the impact on your credit score lessens with time as the item ages and new positive information is added.
While charge offs fall off your report after seven years, the debt technically has a statute of limitations that ranges from 3-6 years in most states. This means the bank or collector has this window of time to sue you for repayment before it becomes time-barred.
Given the long-lasting credit damage and legal collection rights, it’s wise to explore your options for resolving a charge off situation soon after its occurrence rather than waiting it out. The next sections explain the steps you can take to address it.
How to Remove a Charge Off from Your Bank Account
Unfortunately, you cannot simply remove a charge off from your bank account. The status change has already happened. However, you may be able to get the account back in good standing by repaying the negative balance. Here are your options:
Pay Off the Charge Off Balance
The simplest but often hardest route is to pay off the full amount owed to zero. This requires coming up with the overdrawn balance plus any fees. If within the first 30-60 days after charge off, the bank may allow you to repay and have the account reinstated.
Negotiate a Settlement
If unable to swing the full payoff, try negotiating a settlement by offering a lump-sum lesser amount to satisfy the charge off. Many banks allow settlements of 50-80% to avoid the account going to collections.
Apply for a Goodwill Adjustment
You can submit a goodwill letter admitting fault, explaining your circumstances, and kindly asking the bank to remove the charge off. They have discretion to make exceptions to their usual policies and may do so if you’re a long-time loyal customer.
Refinance or Consolidate the Debt
Banks will sometimes allow you to fold the negative balance into a debt consolidation loan or personal loan. This pays off the charge off in full while giving you manageable monthly payments on the new loan.
File for Bankruptcy
Filing for bankruptcy can eliminate the remaining legal obligation to repay charge off debt along with your other debts for a clean slate. But it remains on your credit reports up to 10 years and should only be a last resort option.
Wait for It to Fall Off Your Report
If other options prove unsuccessful, the charge off will eventually expire from your credit reports after seven years. But significant score damage persists in the meantime.
Tips to Prevent a Future Charge Off
The best approach is avoiding having your account charged off in the first place through proactive prevention:
- Monitor your account balance frequently to avoid overdrafts
- Set up account alerts for low balances and withdrawals
- Link a backup overdraft protection source like savings
- Don’t withdraw money on recently deposited checks until fully cleared
- Setup overdraft protection to decline or transfer from savings
- Resolve errors and disputes quickly before balances spiral
- Maintain positive payee relationships to waive fees if reasonable
- Don’t intentionally spend more than your balance without a plan to cover
- Know your rights and bank policies regarding order of transactions, holds placed, when fees occur, and when to request waivers
Banks would rather help you get back in good standing than charge off accounts, so be proactive and communicate with them early about potential issues. An ounce of prevention avoids the major headaches a charge off creates down the road.
Steps to Rebuild After a Charge Off
If you do wind up with a charged-off account on your record, it’s critical to get back on the right track as soon as possible:
- Pay off the charge off balance – Bring the account to $0 owed through lump-sum payment, settlement, or loan refinancing. Leaving it unpaid allows damage to continue.
- Continue paying other accounts on time – Keep all other accounts in good shape to offset the negative status. Don’t open new credit until you reduce debts.
- Get added as an authorized user – Ask a family member to add you to a strong credit card account to inherit positive payment history.
- Build savings – Sock away cash in the bank to show financial health and stability. This helps aid approval odds for new accounts.
- Avoid applying for credit repeatedly – Each application can result in hard inquiries that make approval harder. Only apply at optimal times.
- Consider secured cards – These require a cash deposit and report to credit bureaus like regular cards. It demonstrates responsible credit management.
- Audit credit reports – Ensure no other negatives appear and file disputes on any errors to maximize your score.
- Wait it out – It takes time for the stain of a charge off to fade. Letting the item age helps improve your score over time.
With diligence and patience, you can recover fully from a bank account charge off. But it takes a commitment to financial responsibility and letting the clock run out on negative statuses.
Here are some additional tips related to bank account charge offs that I did not cover fully in the article above:
- Ask if the bank offers “return to good standing” programs if you repay the charged-off amount within a certain timeframe. This may allow them to retroactively remove the negative status.
- Before repaying a charge off, negotiate to get the bank’s offer to delete it from your credit report in writing. This is not guaranteed, but some banks may agree to remove it upon satisfaction of the debt.
- Getting added to a spouse or partner’s bank account as an authorized user can help you rebuild trust and qualify for your own account again faster after a charge off.
- Be wary of desperate measures like taking out a payday loan or using a debit consolidation service to repay a charge off, as these tend to cause more long-term financial harm.
- If identity theft led to the fraudulent account withdrawals that caused the charge off, submit an identity theft report and affidavit to the bank to potentially have it forgiven.
- Contact the CFPB or your state attorney general’s office if the collections agency assigned your charge off is engaging in illegal or harassing behavior. They can intervene or fine them.
- If you file for bankruptcy to eliminate a charge off, be aware this stays on your credit report up to 10 years. Make sure the long-term credit damage is worth the debt relief.
- Negotiating a goodwill adjustment or pay-for-delete agreement on a charge off has no guarantees of success, but it’s worth politely asking hoping the bank shows mercy.
I hope these additional charge off tips prove useful above and beyond the comprehensive overview provided in the main article! Let me know if you need any clarification or have additional questions.