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Definition
A charge-off occurs when a creditor — typically after 180 days of non-payment — declares an account uncollectible and removes it from their balance sheet as a loss for accounting and regulatory purposes. Despite the name, the debt is NOT forgiven or eliminated. The creditor retains the right to sue for the balance, and frequently sells the charged-off account to a third-party debt collection agency for pennies on the dollar. The collection agency then pursues the full balance, often for years. The charge-off notation remains on your credit report for 7 years from the date of first delinquency (not the charge-off date), typically causing a 50–150 point credit score drop. The charged-off balance continues to accrue interest and fees unless negotiated.
Also Known As
written-off debt
bad debt write-off
charged-off account
Used in Context
- The creditor charged off the $8,200 balance after 180 days and sold the account to a collection agency for $820 — 10 cents on the dollar — but the collection agency immediately demanded the full $8,200 plus accrued interest.
- Even though the original creditor charged off the debt three years ago, the statute of limitations clock in Georgia had not yet run, meaning the collection agency could still sue for the balance.
- Settling a charged-off account for less than the full balance results in a 1099-C for forgiven debt — consult a tax advisor about the IRS insolvency exclusion before negotiating.
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