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What Does It Mean When a Debt is Charged Off?
by
JG Wentworth
•
April 30, 2025
•
6 min
When a creditor designates a debt as “charged off,” it marks a significant moment in the debt collection process that affects both the creditor’s accounting and the borrower’s financial future. While many consumers mistakenly believe a charge-off means their debt has been forgiven or cancelled, the reality is quite different…
What is a “charge-off?”
A charge-off occurs when a creditor determines that a debt is unlikely to be collected and writes it off as a loss on their financial statements. This typically happens after a borrower has missed payments for an extended period—usually 180 days (six months) for most credit cards and unsecured loans, though the timeframe can vary depending on the type of debt and creditor policies.
The charge-off is primarily an accounting procedure that allows the creditor to remove the debt from its books as an asset. However, this accounting action does not erase the borrower’s legal obligation to repay the debt.
The charge-off process
The path to a charge-off typically follows a predictable pattern:
- Missed payments: The process begins when you miss a payment on your account.
- Delinquency: After 30 days of non-payment, your account becomes delinquent. The creditor will likely report this to credit bureaus, and you may start receiving collection calls.
- Continued non-payment: As the delinquency extends to 60, 90, and 120 days, late fees accumulate, and collection efforts intensify.
- Charge-off determination: Around 180 days (six months) of delinquency, most creditors will make the decision to charge off the debt.
- Notification: You’ll typically receive a final notice that your account has been charged off.
What happens after a charge-off?
A common misconception is that a charge-off means the debt has been forgiven. In reality:
- You still owe the money: The legal obligation to repay remains in force.
- Collection efforts continue: The original creditor may continue collection attempts or sell the debt to a third-party debt collector.
- Credit report impact: The charge-off appears on your credit report as a significant negative mark that can remain for seven years from the date of the first missed payment that led to the charge-off.
- Potential legal action: Creditors or collection agencies maintain the right to sue you for the debt within the statute of limitations, which varies by state but typically ranges from 3-10 years.
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How charge-offs impact your credit score
A charge-off is one of the most severe negative marks that can appear on your credit report. Here’s how it affects your credit:
- Significant score drop: Expect your credit score to drop substantially—often by 100 points or more.
- Long-lasting impact: The charge-off notation remains on your credit report for seven years.
- Multiple credit score factors affected: A charge-off negatively impacts several components of your credit score, including payment history and amounts owed.
- Future credit difficulties: With a charge-off on your record, obtaining new credit becomes more difficult and expensive, with higher interest rates if you are approved.
Options after a charge-off
If you have a charged-off debt, you have several options:
- Pay the debt in full
You can pay the entire amount owed, which will update the account status on your credit report to “charged-off: paid in full.” While this doesn’t remove the charge-off from your credit report, it shows future potential creditors that you eventually satisfied the debt.
- Sell the debt
You may be able to negotiate with the creditor or collection agency to pay less than the full amount—often between 40-60% of the original balance. If accepted, the status will be updated to “charged-off: settled” or similar language.
- Negotiate a “pay for delete”
Some consumers attempt to negotiate a “pay for delete” agreement, where the creditor removes the negative mark from your credit report in exchange for payment. However, this practice goes against credit reporting guidelines, and many creditors will not agree to it.
- Wait out the reporting period
If you can’t afford to pay and don’t intend to apply for credit soon, you might choose to wait out the seven-year reporting period, after which the charge-off will be removed from your credit report.
- Challenge inaccurate information
If the charge-off information on your credit report is inaccurate, you have the right to dispute it with the credit bureaus under the Fair Credit Reporting Act.
Dealing with debt collectors after a charge-off
Once a debt is charged off, you may face contact from debt collectors. Know your rights under the Fair Debt Collection Practices Act (FDCPA):
- Collectors cannot harass, oppress, or abuse you.
- They must be truthful about who they are and the amount you owe.
- They cannot contact you at inconvenient times (before 8 a.m. or after 9 p.m.).
- You can request verification of the debt in writing.
- You can send a written request for them to stop contacting you.
Rebuilding your credit after a charge-off
While a charge-off is damaging, you can take steps to rebuild your credit:
- Pay or settle charged-off accounts if possible.
- Make all current payments on time to avoid further damage.
- Reduce existing debt and maintain low credit utilization ratios.
- Consider secured credit cards designed for rebuilding credit.
- Become an authorized user on a responsible person’s account.
- Use tools like credit builder loans specifically designed to help establish positive payment history.
The bottom line
A charge-off represents a serious financial setback but not the end of your financial journey. Understanding what a charge-off means—and doesn’t mean—is the first step toward addressing the situation and beginning the process of rebuilding your credit. While the debt remains legally valid and the negative impact on your credit is significant, options exist for resolving the debt and gradually restoring your financial health.
By taking proactive steps to address charged-off accounts and implementing sound financial habits going forward, you can minimize the long-term consequences and work toward a healthier financial future.
There’s always JG Wentworth…
If you have $10,000 or more in unsecured debt there’s a good chance you’ll qualify for the JG Wentworth Debt Relief Program.* Some of our program perks include:
- One monthly program payment
- We negotiate on your behalf
- Average debt resolution in as little as 48-60 months
- We only get paid when we settle your debt
If you think you qualify for our program, give us a call today so we can go over the best options for your specific financial needs. Why go it alone when you can have a dedicated team on your side?
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* Program length varies depending on individual situation. Programs are between 24 and 60 months in length. Clients who are able to stay with the program and get all their debt settled realize approximate savings of 43% before our 25% program fee. This is a Debt resolution program provided by JGW Debt Settlement, LLC (“JGW” of “Us”)). JGW offers this program in the following states: AL, AK, AZ, AR, CA, CO, FL, ID, IN, IA, KY, LA, MD, MA, MI, MS, MO, MT, NE, NM, NV, NY, NC, OK, PA, SD, TN, TX, UT, VA, DC, and WI. If a consumer residing in CT, GA, HI, IL, KS, ME, NH, NJ, OH, RI, SC and VT contacts Us we may connect them with a law firm that provides debt resolution services in their state. JGW is licensed/registered to provide debt resolution services in states where licensing/registration is required.
Debt resolution program results will vary by individual situation. As such, debt resolution services are not appropriate for everyone. Not all debts are eligible for enrollment. Not all individuals who enroll complete our program for various reasons, including their ability to save sufficient funds. Savings resulting from successful negotiations may result in tax consequences, please consult with a tax professional regarding these consequences. The use of the debt settlement services and the failure to make payments to creditors: (1) Will likely adversely affect your creditworthiness (credit rating/credit score) and make it harder to obtain credit; (2) May result in your being subject to collections or being sued by creditors or debt collectors; and (3) May increase the amount of money you owe due to the accrual of fees and interest by creditors or debt collectors. Failure to pay your monthly bills in a timely manner will result in increased balances and will harm your credit rating. Not all creditors will agree to reduce principal balance, and they may pursue collection, including lawsuits. JGW’s fees are calculated based on a percentage of the debt enrolled in the program. Read and understand the program agreement prior to enrollment.
This information is provided for educational and informational purposes only. Such information or materials do not constitute and are not intended to provide legal, accounting, or tax advice and should not be relied on in that respect. We suggest that you consult an attorney, accountant, and/or financial advisor to answer any financial or legal questions.