Essentially, this is an accounting term used by creditors for a debt that is considered uncollectable because they debtor has not made any payments within a certain period of time (usually 6 months). Although the creditor no longer considers the debt one of their assets, the debtor is not relieved of responsibility for paying the amount.

That would be too easy (and not fair to those of us who do pay off our credit cards on time). A charge-off does not equal a write-off. The creditor will often still try to collect on the debt. Because they have basically eaten your debt, they punish you by placing a serious negative mark on your credit report and often will still try to collect on the debt, or sell it to a debt collection agency.

Debt collection has become a big business in recent years. Collection agencies can often buy old debt for pennies on the dollar or less. Once the debt is in the hands of a collection agency, they get to keep any money collected, and will often use coercive and intimidating tactics to collect the debt. If you are being harassed by a collection agency, make sure you refer to the FTC’s Fair Debt Collection Practices Act to make sure the agency is not violating your rights.

Obviously, a charge-off is serious business and will have a negative effect your credit for many years. Obviously you should make every attempt to repay the debt. Check your state’s statue of limitations to find out how long the debt is considered collectible. Do what you can to work with creditors to come up with a payment plan that will work for you. But don’t be intimidated or bullied by collection agencies into thinking a charge-off is a insurmountable catastrophe.

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