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Debt collection question about charge off.

West Palm Beach, FL |

I was just wondering how a bank can put an account into charge off, take the tax write off for the charged off amount, then sell the debt to a debt collector (making something off the sale presumably) and then that debt collector can attempt to collect on the "entire" debt.
It seems unjust that a bank can receive a tax write off, but the collector can still collect on the entire debt.
My thought process being that for a breach of contract claim the bank is only entitled to actual damages pursuant to the contract. Now if the bank is able to alleviate some of those damages by writing of the debt and receiving tax credits, then wouldn't that reduce the amount the bank or assignee is able to recover through a breach of contract claim?

Attorney Answers 4


  1. Best answer

    No. When you pay the assignee, anything that he recovers over and above what he paid to purchase your debt is profit to him and thus is taxable to the assignee. That way the federal government recovers in taxable income against the assignee what it loses as a loss as claimed by the assignor.


  2. The debt collector is able to collect the full amount of the debt owed including fees, interest, and penalties. Most of the time banks charge off debts because they never expect to collect anything; that's why they sell them to collection agencies on the cheap. Under the law, the collection agency is able to attempt the entire amount. Write your congressman!

    The information provided in this post is not "legal advice." Rather it is general information on common legal issues. If you have questions concerning your specific situation, it is always best to consult an attorney in your area.


  3. You raise a good point. My understanding has been that after 6 months of non-payment the bank has to harge the debt off their books as an asset. That doesn't mean you don't owe them money, they just have to characterize you as a bad or questionable debt. Howeverr, if they charge youoff then take a taz deduction, you would know : the dreaded 1099. So if you are being sued by a creditor or JDB, ask if a 099 was ever issued. If it was, then you might have a claim that there is no debt that can be legally collected.


  4. The bank gets a tax break because it lost money - all it gets is the pennies on the dollar the debt buyer pays.

    If the bank "cancelled" the debt and sent you a 1099, it should not be selling the debt. But it does not sound like that happened in your situation.

    I am not your attorney and I am not giving legal advice. I am giving you general information about the law. To give you legal advice I would first have to learn more about the facts and circumstances of your particular situation. The Rhode Island Supreme Court licenses all lawyers in the general practice of law. The court does not license or certify any lawyer as an expert or specialist in any particular field of practice.