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- 7 min read
Table of Contents
- Bills Bottom Line
- A moment many people experience
- What's a charge off?
- Why creditors charge off debts
- What happens after an account is charged off?
- Does a charge off mean the debt is gone?
- How a charge off affects your credit
- Charge Off vs. collection: how they differ
- Can a charge-off be removed from your credit report?
- Should you pay a charged off debt?
- What are your options after a charge off?
- Bills Action Plan
Bills Bottom Line
A charge off happens when a creditor marks your debt as unlikely to be repaid, usually after about six months of missed payments. It's an accounting step, not debt forgiveness. You still owe the balance, collection activity can continue, and your credit can be affected for up to seven years. But you have options to respond, negotiate, or move forward.
A moment many people experience
You log in to check your credit report, hoping the late payments haven't caused too much damage. Then you see something new next to one of your accounts: "Charge Off."
It sounds final—almost like the debt was erased. But you're still getting notifications, and nothing seems resolved.
If you've ever seen a charge off on your report and wondered what it actually means, this is one of the most misunderstood terms in personal finance—and it can feel unsettling when you see it for the first time.
What's a charge off?
A charge-off is when a creditor updates your account to show they don't expect the debt to be repaid after roughly 180 days of missed payments. This is an accounting decision, not debt cancellation. You still owe the debt, and collection activity often continues—sometimes more actively.
Common misconception: A charge-off does not erase your debt
A charge-off doesn’t mean the debt disappears. It’s how a creditor marks an account after months of nonpayment. You still owe the balance, and the creditor or a collector may keep trying to collect. In some cases, legal action is possible, so it’s smart to understand your options.
Why creditors charge off debts
Creditors must follow banking and accounting rules. For many debts, especially credit cards, the typical timeline looks like this:
- You fall behind on payments.
- After about six months of non-payment, the creditor moves the account into "loss" status.
- They record the account as a charge off for regulatory purposes.
It's a bookkeeping requirement—not a sign that the creditor has given up.
What happens after an account is charged off?
A charge off doesn't close the door on a debt. In fact, it usually opens a new phase.
You still owe the debt
You still have a legal obligation to pay unless the debt is settled, paid, forgiven, or discharged.
The account may be sent to collections
This is where things often change for the consumer. Once an account is charged off:
- The original creditor may keep collecting
- A third-party agency may be hired
- Or the debt may be sold to a debt buyer
Ownership affects who you negotiate with, but not whether the debt is still owed.
Your balance may continue growing
Depending on your agreement and the type of account:
- Interest can continue to accrue
- Some fees may still apply
- In limited cases, depending on the contract, collection costs may be added
This is one reason older accounts can end up larger than the original balance.
Does a charge off mean the debt is gone?
No. A charge off does not wipe out the debt. It only changes how the creditor reports it internally.
Here's what that means in practice:
- The debt is still collectible
- Collection efforts may continue
- A creditor or collector can sue, depending on the balance, account history, and your state's statute of limitations
- The statute of limitations does not restart because of a charge off
How a charge off affects your credit
A charge off is one of the most serious negative marks that can appear on a credit report.
How long a charge off stays on your credit report
A charge off can remain on your credit report for up to seven years from the original delinquency date—the date you first missed a payment and never caught up.
Important notes:
- Selling the debt does not restart the seven-year clock
- Paying or settling updates the status but does not remove the charge off
How lenders view a charge off
To a lender, a charge off signals a past financial hardship. As a result, new credit applications may face:
- Higher interest rates
- Lower credit limits
- Greater scrutiny
- Possible denials
Charge Off vs. collection: how they differ
These two terms often appear together, but they refer to different things. Here's how they compare:
| Feature | Charge Off | Collection |
|---|---|---|
| When it happens | Around 180 days past due | Anytime after missed payments |
| Who is involved | Original creditor | Collection agency or debt buyer |
| What it represents | Creditor records a loss | Someone is actively pursuing repayment |
| Credit impact | Very negative | Also negative |
| How it appears | On original account trade line | As a separate collection account |
How do a charge off and a collection debt differ?
A charge off is about categorizing the debt. A collection is about trying to recover it.
Can a charge-off be removed from your credit report?
If the charge off is accurate, it generally can't be removed by paying or settling. But errors do happen, and those can be corrected.
When removal or correction is possible
- The balance is wrong
- The dates are incorrect
- The account wasn't yours (identity theft)
- The debt was re-aged improperly
- The charge off appears twice
If something looks off, you can dispute it with the credit bureaus.
Should you pay a charged off debt?
This is the question many people come back to after seeing that status on their credit report. There isn't a single right answer—the best choice depends on your goals, budget, and broader financial situation.
Reasons paying might make sense
Some people decide to pay or settle because they want to:
- Stop collection calls
- Lower the risk of being sued
- Qualify for a mortgage or major loan
- Resolve the debt for personal reasons
Why paying might not boost credit right away
From a credit reporting standpoint:
- The charge off remains for the full seven years
- Updating the status to "paid" or "settled" doesn't erase past delinquencies
That said, many lenders prefer accounts that have been resolved over those left open.
Paying in full vs. settling
You could negotiate with your creditor to settle your charged off account.
If you're weighing your options, here's how they compare:
| Paying in Full | Settling | |
|---|---|---|
| Amount paid | 100% of balance | Less than full balance |
| Credit report status | "Paid" | "Settled" |
| Debt resolved? | Yes | Yes |
| May require negotiation? | No | Yes |
How does paying a debt in full and settling one compare?
Many creditors and collectors accept settlements for less than the full balance. Settlement closes the account, even though the charge off remains on your report.
What are your options after a charge off?
Even though a charge off feels like a dead end, you still have a range of options.
Try to resolve it with the original creditor
If they still own the account:
- Ask for an updated balance
- See if repayment or settlement is possible
- Get everything in writing
Work with the collection agency or debt buyer
If the debt has moved:
- Ask for validation
- Confirm ownership
- Negotiate only after ownership is clear
Repay or settle based on your budget
Choose something realistic. Over-promising often causes more strain later.
Explore hardship or debt relief options
If this debt is part of a larger financial challenge, consider:
- Adjusting your budget
- Talking with a nonprofit credit counselor
- Exploring debt relief programs
- Considering bankruptcy, depending on your situation
When to seek legal or professional help
If you're facing threats of legal action or you're unsure of your rights, a consumer law attorney can help you understand your options.
Bills Action Plan
- Pull your credit reports from all three bureaus.
- Confirm who owns the debt before making any decisions.
- Compare the details with your own records and look for errors.
- Decide what you can realistically afford.
- Document every communication.
- If the debt is part of a larger strain, step back and review your full financial picture.
Monitor your credit report after resolving or disputing the account.
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Choose your debt amount
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Can I be sued for a charged-off debt?
Yes. A charge off is an accounting status, not legal protection. Creditors or debt collectors can still file a lawsuit to recover the balance, depending on the amount owed and your state's statute of limitations. If you're served with a lawsuit, responding by the deadline is critical—ignoring it often results in a default judgment, which could lead to wage garnishment or bank levies.
Will paying a charge off improve my credit?
It won't erase the charge off from your credit report—that stays for seven years from the original delinquency date. However, updating the status to "paid" or "settled" shows future lenders you've resolved the debt. Some lenders, especially mortgage underwriters, look more favorably on accounts that have been addressed rather than left unresolved.
Can I negotiate a charged-off debt?
Often yes. Many creditors and debt collectors will consider a settlement for less than the full balance, especially if the debt has been outstanding for a while. Before negotiating, confirm who currently owns the debt and get any agreement in writing before making a payment. Starting with a lower offer and working up is a common approach.
10 Comments
I never paid a $3700 student bill from Penn State. They "charged off" and sold the debt to a 3rd party then hit me with one 120 day a year for 4 yrs. On the 5th year (2020) they've hit my Transunion only with about seven 120 days late in a row; I thought once an account was charged off and sold they couldn't report my account late or report a balance (which my reported balance is 0) ? Please help!
Hello Eric,
Thank you for reaching out. You are correct if you think there is an error in the reporting. However, creditors can continue to post details that are accurate to the reporting agencies.
Eric, if you are finding that your debts are becoming difficult to sustain. May I recommend our partner Freedom Debt Relief. They can be reached at 800-852-1431 and be able to provide you with a free consultation regarding your financial options.
Regards, Josh
Regards, Josh
I had a charge off in 2013 on a home equity line of credit. The bank took me to court to try and collect the debt in 2016 and it was dismissed. Ii recently filed for bankruptcy and the creditor sent the written off debt with 2 years of interest added to it is this legal if the case was dismissed? Can they add interest on the loan for 2 years if it's not been heard in front of a judge?
Ron, are you doing the bankruptcy on your own or with an attorney? If an attorney, then ask him or her. If not, consider hiring one, or at least consulting with one. A lawyer needs to review what was dismissed. It isn't clear to me who dismissed it and on what grounds, as you later say it was not heard in front of a judge. Maybe you mean a judge dismissed it on some grounds before a full hearing, but I am not sure. The fact that a debt was charged-off doesn't mean you don't owe it. There may be a legal right to continue to charge interest, though many creditors choose not to.
The type of bankruptcy you file, whether you are still in the home, the state in which you file and its exemptions from collection for property and its statute of limitations on debt all can make a difference. Be cautious and get solid legal advice.
Ron, are you doing the bankruptcy on your own or with an attorney? If an attorney, then ask him or her. If not, consider hiring one, or at least consulting with one. A lawyer needs to review what the judge wrote when dismissing the previous case.
The type of bankruptcy you file, whether you are still in the home, the state in which you file and its exemptions from collection for property and its statute of limitations on debt all can make a difference. Be cautious and get solid legal advice.
Shaniece, the missed payments will remain on the credit report for 7 years after the date of the first missed payment. As time passes, the effect on your credit score diminishes. If improving your score is an important goal, be sure you have active accounts that appear on your report that show you in good standing.