In Kelly v. Wolpoff & Abramson, LLP, 2008 WL 2397689 (D.Colo. 2008), District Judge Nottingham rejected a consumer’s claim that a debt collector violated the FDCPA by collecing on a “charged off” account.  Judge Nottingham rejected the misperception some consumers have that “charging off” an account equates to debt extinguishment.

According to generally accepted accounting principles codified into federal regulations and made applicable to MBNA, retail loans that become past due for 180 days ‘should be classified as a Loss and charged off’. . . Such “charging off” essentially amounts to a ledger book reclassification and is an accounting practice which Defendant freely admits it follows. . .

Plaintiff contended that (1) MBNA developed reporting requirements because it had a policy of charging off debts after 180 days, (2) those reporting requirements prove that Plaintiff’s debt became taxable income to her, and (3) taxable income to Plaintiff proved the extinguishment of her debt as a matter of law.  Not so, said the District Court.

In short, Plaintiff’s argument amounts to the absurd proposition that credit card holders who are unable to pay their debt need merely stop payment for 180 days, at which point – through the inexorable interplay of accounting and tax reporting requirements — such debts will automatically become taxable income and be extinguished.  This theory is as ridiculous on its face as it is incoherent in its explanation, and assuming that it proves anything at all, it may merely suggest that my earlier decision not to impose Rule 11 sanctions on Plaint may be have been too lenient.