Charge-Off

Charge-off summary: 

• If you fall behind on debt payments by 120-180 days, your creditor might declare your account a charge-off.

• Charged-off accounts are still your responsibility to pay or settle, and they can stay on your credit report for seven years.

• Going through a debt settlement program can help you overcome charge-offs and rebuild your finances.

Charge-off Definition and Meaning

Charge-off is a word used by banks, lenders, and creditors to describe loans or credit accounts that are written off as a loss because they aren't being paid. If you fall behind on loan or credit account payments for four to six months, you might end up having your credit account classified as a charge-off. 

It’s important to understand that a charge-off doesn't mean your debt is forgiven. Even if you fall far behind on a loan or credit account payment, you still have a legal obligation to repay the debt. 

Key Features of a Charge-off 

Having a loan or credit account go into charge-off status isn't good. If your credit account becomes a charge-off, this means: 

• The bank, lender, or creditor no longer expects to be repaid, and is writing off the debt for accounting purposes. (Your debt isn't forgiven, and you still have an obligation to pay it, or reach a debt settlement.)  

• Charged-off accounts are closed, and can't be used for additional purchases. 

• Charged-off accounts can also be transferred to a collections agency or sold to a debt buyer. If your account becomes a charge-off, you might start hearing from debt collectors soon after. 

• Charged-off accounts can show up on your credit report for up to seven years, and are likely to reduce your credit score. 

• A debt relief program might be able to help you clear the charged-off account for less than the full amount you owe. Settling your charged-off debts in this way can be better for your credit score than leaving them unpaid. 

Charge-off: Real-Life Examples

Here are a few real-life examples of how a credit account can become a charge-off. 

• Late payments: Charge-off status doesn’t happen right away after one missed payment. If you're 120 to 180 days late on payments, you may be getting into the timeframe for a charge-off to occur. The exact timeframe depends on the bank, lender, or creditor.   

• Below-minimum payments: Even if you have made on-time payments to your credit account, charge-offs can happen. If your payment amounts are too small to meet the monthly minimum payment, this could also cause your account to get charged-off. 

• Bankruptcy: If you declare bankruptcy, your credit accounts may be charged-off. If those debts are discharged as a result of your bankruptcy, you are no longer legally obligated to repay them.

A charge-off isn't the end of the world. In fact, when a debt gets charged off, the debt collector could be more motivated to negotiate an agreement with you. The more delinquent a debt is, the less likely it is to be repaid. Creditors know this, and are often willing to accept something so they don’t have to walk away with nothing.