Charge-off

A charge-off or chargeoff is the declaration by a creditor (usually a credit card account) that an amount of debt is unlikely to be collected. This occurs when a consumer becomes severely delinquent on a debt. Traditionally, creditors will make this declaration at the point of six months without payment. In the United States, Federal regulations require creditors to charge-off installment loans after 120 days of delinquency, while revolving credit accounts must be charged-off after 180 days.[1]

The purpose of making such a declaration is to give the bank a tax exemption on the debt. Bad debts and even fraud are simply part of the cost of doing business. The charge-off, though, does not free the debtor of having to pay the debt.

A charge-off is one of the most adverse factors that can be listed on a credit report[2]. It will then be listed as such on the debtor's credit bureau reports (Equifax, for instance, lists "R9" in the "status" column to denote a charge-off.) The item will include relevant dates, and the amount of the bad debt.[3]

While a charge-off is considered to be "written off as uncollectable" by the bank, the debt is still legally valid, and remains as such after the fact. The creditor legally has the right to collect the full amount for a time periods permitted the laws of places of the location of the bank and where the consumer resides. Depending on the location, this amount of time may be a certain number of years (e.g. 3 to 7 years), or in some places, indefinitely. Methods of collection that can be used include contacts from internal collections staff, outside collection agencies, or if the amount is large (generally over $1500–$2000), there is the possibility of a lawsuit or arbitration.

In the US, as the charge off number climbs or becomes erratic, officials from the Federal Reserve take a close look at the finances of the bank and may impose various operating strictures on the bank, and in the most extreme cases, may close the bank entirely.

Effects on credit report

With a chargeoff being one of the worst possible items on a credit report, this may make obtaining any unsecured or even secured credit more difficult.

If the charge-off has been paid in full, it will be listed on the credit report as "paid in full." If settled for less than the amount, it'll be listed as "settled." Even such a listing on a credit report can be negative.[4].

External links

References


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Look at other dictionaries:

  • charge-off — ˈcharge off noun [countable] ACCOUNTING COMMERCE when you lose profit because money that is owed to you will not be repaid: • Charge offs for loan losses were only 0.7% of total loans, about half the average for regional banks. * * * charge off… …   Financial and business terms

  • charge off — {v.} 1. To consider or record as a loss, especially in an account book. * /The store owner charged off all of the last season s stock of suits./ Syn.: WRITE OFF(1). 2. or[charge up] {informal} To accept or remember (something) as a mistake and… …   Dictionary of American idioms

  • charge off — {v.} 1. To consider or record as a loss, especially in an account book. * /The store owner charged off all of the last season s stock of suits./ Syn.: WRITE OFF(1). 2. or[charge up] {informal} To accept or remember (something) as a mistake and… …   Dictionary of American idioms

  • charge-off — Eliminate or write off. Dictionary from West s Encyclopedia of American Law. 2005. charge off Eliminate or write off. Short Dictionary of …   Law dictionary

  • charge off — vt: to treat as a loss or expense; specif: to deduct as a bad debt part of the debt is charged off Code of Federal Regulations Merriam Webster’s Dictionary of Law. Merriam Webster. 1996 …   Law dictionary

  • charge-off — ˈ ̷ ̷ˌ ̷ ̷ noun ( s) Etymology: charge off 1. : the reduction of the value at which an asset has been carried on the books bad debt charge offs 2. : the amount by which an account is reduced by cha …   Useful english dictionary

  • Charge-Off — A term describing an expense on a company s income statement. A charge off will fall under one of the following categories: 1. A debt that is deemed uncollectible by the reporting firm and is subsequently written off. This type will be classified …   Investment dictionary

  • charge off — See: bad debt * * * UK US charge off Phrasal Verb with charge({{}}/tʃɑːdʒ/ verb ► FINANCE to consider as a loss a debt that will probably not be paid: »The company charged off $120 million worth of bad credit card debt in the third quarter …   Financial and business terms

  • charge off — transitive verb Date: 1892 to treat as a loss or expense • charge off noun …   New Collegiate Dictionary

  • charge-off — noun see charge off …   New Collegiate Dictionary


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