“Charged Off” Doesn’t Mean Forgiven: What Happens to a Charged-Off Debt

“Charged off” sounds like the end of a debt. It is not. A charge-off is the creditor’s internal accounting decision after months of missed payments. It does not erase what you owe, and the account can still be collected or sold to a debt buyer. Here is what actually happens, and what you can do about it.

What a charge-off is

When a credit card goes unpaid for long enough, the bank stops counting the balance as money it expects to collect and writes it off as a loss on its own books. For credit cards, federal banking guidance generally has banks do this once an account is about 180 days (six months) past due. That is a bookkeeping step for the bank. Your legal obligation to repay does not change.

Who can still collect

After a charge-off, one of three things usually happens:

• The original creditor keeps the account and keeps trying to collect, either itself or through a collection agency working on its behalf.
• The account is sold to a debt buyer, often for a fraction of the balance. The buyer then owns the debt and can collect the full amount.
• The creditor or buyer files a lawsuit. Whether that is still possible depends on your state’s statute of limitations for that kind of debt.

If a new collection account shows up on your credit report after a charge-off, that is usually not a second debt. It is the same debt, now being reported by the company collecting it. If you are not sure who owns an account, you have the right under the Fair Debt Collection Practices Act to ask a collector to validate the debt.

How long a charge-off stays on your credit report

Under the Fair Credit Reporting Act, a charged-off account can stay on your credit report for seven years, counted from 180 days after the missed payment that started the delinquency. In practice that is about seven and a half years from when you first fell behind. Paying the account, settling it, or having it sold does not restart that reporting clock.

The credit-reporting clock and the lawsuit clock are different things. The seven-year reporting window is set by federal law. The window in which a creditor can sue is set by each state, varies by type of debt, and in some states can be restarted by a payment or a written acknowledgment of the debt. Check the rules for your state, and talk to a licensed attorney before you make a payment on a very old account.

Your options with a charged-off debt

• Pay it in full. The account will be updated to show a zero balance, but the charge-off history stays for the full reporting period.
• Negotiate a settlement for less than the full balance, either on your own or with help. Get any agreement in writing before you pay. Forgiven amounts may be reported to the IRS on a 1099-C; see our guide to the 1099-C and taxes after settlement.
• Talk to a nonprofit credit counselor about a repayment plan, or to an attorney about bankruptcy, if you are dealing with several accounts at once.

If you are carrying several charged-off or past-due accounts, a DebtHelp debt specialist can walk through whether settlement fits your situation. To be clear about what that involves: debt settlement can negatively affect your credit, not all debts are eligible, and results vary. DebtHelp does not charge any fee until a debt has been settled and you have made a payment under that settlement. You can read more on our debt settlement page, or compare all of your choices in the five options you have.