Can Interest Accrue on Charged Off Debt?

Many borrowers with charged-off debts are surprised by bill collectors claiming the debt has accrued large amounts of interest. Although some debts may become too old for lenders to collect, charged-off debts do typically continue to accrue interest.

Accounting

• Charged-off debt, according to the financial website The Dollar Stretcher, is outstanding debt that a lender has declared uncollectable for accounting purposes. Although the lender may scale back collection activity, the debt remains valid and may continue to accrue interest.

Exceptions

• Although The Dollar Stretcher points out that lenders typically charge off the outstanding debt, the Iowa Division of Banking notes that some lenders charge off both the debt principle and anticipated interest. In some cases, the charge-off activity may limit the amount of interest that can accrue.

Statute of Limitations

• Some states, according to The Dollar Stretcher, limit the amount of time a borrower can be responsible for an unpaid debt. This expiration date, known as the statute of limitations, varies from state to state but typically ranges from three to six years.