A charge-off means a creditor or lender has officially written a debt off as a loss because they believe it is unlikely to be collected, typically after about six months (180 days) of missed payments. When an account is charged off, it is closed to future charges, but the borrower is still legally responsible for repaying the debt
. Key points about charge-offs:
- It is an accounting action where the creditor removes the debt from their assets, considering it uncollectible
- The charge-off is reported as a negative entry on the borrower's credit report, which can severely damage credit scores and affect future borrowing ability
- Although the creditor stops trying to collect the debt themselves, they may sell the debt to a collection agency or debt buyer who will continue collection efforts
- The debt remains legally valid, and the borrower must still pay it off, settle it, or have it discharged through bankruptcy
- Paid charge-offs are noted as such on credit reports but still remain derogatory marks, though some lenders may view paid charge-offs more favorably than unpaid ones
In summary, a charge-off is a formal declaration by a creditor that a debt is unlikely to be collected, but it does not erase the borrower's obligation to repay the debt. It also has significant negative consequences for the borrower's credit history and score
