Charge-Off

Charge-off summary:

• A charge-off is when a creditor calls a debt a total loss for tax purposes. 

• When a debt is charged off, it could be sold to a collection agency that can then pursue you for payment.

• You’re still responsible for your debts, even if they are charged off.

Charge-off definition and meaning

A charge-off is an unpaid debt that a creditor writes off as a loss because the borrower has defaulted on payments. Creditors can charge off debts when they decide that they're unlikely to be repaid. 

Charge-offs clear unpaid debts from the creditor's accounting books, but they don't relieve the borrower from their responsibility to pay what's owed. 

The amount of time that needs to pass without payment varies by creditor. It's typical for creditors to charge off debts that haven't received any payments in the last four to six months. 

More about charge-off

A charge-off is a debt that's gone unpaid for an extended period. Creditors can charge off debts when it becomes clear that the borrower can’t or won’t pay what's owed. 

Charge-offs are a tool creditors use to remove unpaid debts from their books. This is a strategic financial move, since bad debts can be written off on the creditor's tax return. 

Debts that are charged off aren't forgiven, and they don't go away. Once enough time passes, the debt may become time-barred. That means you can no longer be sued over it but you're still responsible for what you owe. 

What happens when a debt is charged off?

When a lender charges off a debt, that debt could be sold to a collection agency. The original creditor washes its hands of the account, but the debt collector could still try to get you to pay up. 

Here's what could happen next:

• The original balance for the charged-off account may be changed to $0 on your credit report.

• A new collection account shows up on your credit reports with the unpaid balance due.

• The debt collector could send letters or call you to request payment. 

• You may be sued over the debt. If the debt collector wins, they could ask the court to garnish your wages or bank account to collect what's owed. 

A charge-off or collection account on your credit report could make your credit scores go down. If your scores go down, it might be harder to borrow money, rent an apartment, get utility services in your name, or get hired for certain jobs. 

Should you pay charged-off debt?

Charged-off debt still belongs to you legally. Your obligation to pay doesn't go away. If you'd like to pay a charge-off account, there are a couple of ways to approach it.

• Set up a payment plan with the debt collector. 

• Attempt to resolve the debt. 

When you resolve debt, you get the creditor or debt collector to accept less than the full amount you owe and forgive the rest. Debt resolution could make sense if you mostly owe unsecured debts. 

You can negotiate with creditors yourself or work with a professional debt resolution company that negotiates for you.