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What is a Credit Card Charge-Off?

A credit card charge-off means that by the time that your account is defaulted for about 180 days or six months, the creditor will write off the account as bad debt in their account books. Although you still owe the debt, it will be zeroed out on their account books and therefore, leave a negative mark on your credit report. The charge-off serves creditors for tax purposes in which creditors will report the charge-off or uncollectable debt as a loss. It is required by the federal Office of the Comptroller of Currency to write the account as bad debt so that creditors will not inflate future statements with defaulted accounts.

An account that is marked charged off by creditors due to the debtors non-payment of the balance will be perceived as a business loss. After many unsuccessful attempts at getting the debtor to pay the amount, the creditor will finally write off or charge off the account as a loss. The amount of time creditors decide to declare the defaulted account as a non-asset depends on each creditor, but it usually takes months after unsuccessful collection of the debt.

After the creditor fails to collect your debt and marks the account as charged off, it can sell your account to collection agencies. Although third party collection agencies can collect the debt in full since the balance is not paid off, it can also do a settled charge-off. A settled charge-off or debt settlement takes place when the collection agency offers to collect the debt in an amount that is lower than the full debt owed.

Debt settlement is an offer from you or a representative to pay off your debt at a lowered balance. The offer is a way for creditors to try to get you to pay off the debt. They will negotiate a price that is lower than your initial debt so that you can pay off the debt or settle the debt. The debt settlement is an agreement between you and the creditor for repayment of the debt and afterwards, the transactions with them end and your account will be reported as a settled-charge off.

You will usually have to pay the settled amounts off at one time, but some creditors or debt settlement companies allow you to pay the settlement amount over several months. Be sure to get the written settlement offer as a copy for your records.

It is better to pay the amount in full than paying it partially in a settlement. You can try to negotiate to see if the creditor will report it as paid as agreed instead of settled after the charge off.

March 27, 2009

  1. Types of unsecured debt include: credit cards, personal loans, gas cards, department store cards, apartment lease judgements, medical bills, etc. Secured debt such as your home or car cannot be included in the program. However, if your car is repossessed or you foreclose on your home, our partners may be able to resolve what you still owe on those loans.
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