What is Charge-Off?

A charge-off is an accounting declaration by a creditor that a delinquent debt is deemed highly unlikely to be collected and is written off as a bad debt loss. In compliance with Federal Financial Institutions Examination Council (FFIEC) guidelines, creditors typically execute a charge-off after an account remains past due for 180 days (six months) on revolving lines like credit cards, or 120 days on installment loans. During this accounting process, the creditor closes the consumer’s account and registers the outstanding balance as a loss on its balance sheet. However, a charge-off does not mean the debt is legally forgiven or settled.

The borrower remains legally obligated to pay the full outstanding balance. Following a charge-off, the original creditor may continue internal collection efforts, assign the account to a third-party collection agency, or sell the debt portfolio to a secondary debt buyer who will seek recovery. Additionally, debt owners retain the legal right to file a lawsuit to secure a judgment for wage garnishment or property liens. A charge-off is recorded as a severe negative mark on credit reports, remaining visible for seven years from the original Date of First Delinquency (the date of the first missed payment that led to the charge-off), and causes significant, long-term damage to credit scores.