Charge-off

A charge-off or chargeoff is a 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 make this declaration at the point of six months without payment. A charge-off is a form of write-off.

## Contents

* 1 Legal consequences of a charge-off
* 2 United States
* 2.1 Tax regulations
* 2.2 Effects on credit report
* 2.3 Effects on banks
* 3 References
* 4 External links

## Legal consequences of a charge-off

While a charge-off is considered to be "written off as uncollectable" by the lender, the debt is still legally valid and remains so after the fact. The creditor has the right to legally collect the full amount for the time period permitted by the statute of limitations applicable to the location of the financial institution and the consumer's residence. Depending on the location, this period may be a certain number of years (e.g. three to seven years) or, in some places, indefinite. Methods of collection that can be used include contacts from internal collections staff, outside collection agencies, arbitration, or a lawsuit.

## United States

### Tax regulations

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 help support a tax deduction for bad debts under Section 166 of the Internal Revenue Code. In that respect it is a form of write-off. 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.

### Effects on credit report

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] 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 due, it will be listed as "settled". Even such a listing on a credit report can be negative.[4]

### Effects on banks

As the number of charge-offs climbs or becomes erratic, officials from the bank's regulators take a close look at the finances of the bank. They may impose various operating restrictions on the bank and, in the most extreme cases, may close the bank entirely.

## References

1. ↑ Cackley, Alicia Puente (2009). Credit Cards: Fair Debt Collection Practices Act Could Better Reflect the Evolving Debt Collection Marketplace and Use of Technology. United States Government Accountability Office. pp. 5. ISBN 9781437924572. https://books.google.com/books?id=bj0Qmz04ChwC&q=charge-off+account&pg=PA5.
2. ↑ "What is a Charge-Off? | the Truth About Credit Cards". 8 March 2007. http://www.thetruthaboutcreditcards.com/what-is-a-charge-off/.
3. ↑ "Bad Debts and Charge-Offs". http://www.cardreport.com/credit-problems/charge-off.html.
4. ↑ "Here's How Paying a Charge-Off Will Affect Your Credit Score". http://financialplan.about.com/od/creditcarddebt/f/Chargeoff.htm.

## External links

* What is a charge-off?
* Charge-offs in the United States—history since 1985, by the Fed

* v
* t
* e

Credit, charge and debit cards

Major cards|

* American Express
* Diners Club
* Mastercard
* Debit Mastercard
* Maestro
* Visa
* Visa Debit
* Visa Electron

Regional and
specialty cards|

* Bancomat
* BC Card
* BCA Card
* Cabcharge
* Dankort
* Discover
* EFTPOS
* Electronic Payment Services (EPS)
* Elo
* Forbrugsforeningen
* Girocard
* Interac
* Isracard
* JCB
* Mir
* MEPS
* NETS
* PayPak
* RuPay
* Troy
* UnionPay
* UATP
* V Pay
* Verve

Defunct cards|

* Access
* Bankcard
* Carte Blanche
* Carte Bleue
* Choice
* enRoute
* Eurocard
* Everything
* Laser
* Rail Travel Card
* Revolution Card
* Solo
* Switch
* PIN

Accounts|

* Payment card number
* Card association
* Card enclosure
* Credit card balance transfer
* Credit limit
* Installment credit
* Revolving account
* Deposit account
* Current/checking account
* Savings account
* ATM card
* Fees

Debt|

* Cash advance
* Charge-off

Interest|

* Grace period
* Introductory rate
* Universal default

Payment|

* Card not present transaction
* Chargeback
* Controlled payment number
* Dispute

Interchange|

* Interchange fee
* Surcharge
* Card scheme

Security|

* Card security code
* Chargeback fraud
* Credit card fraud
* Credit card hijacking

Technology|

* Automated teller machine
* Contactless payment
* EMV
* Hardware security module
* Interbank network
* Magnetic stripe card
* Payment terminal
* Personal identification number
* Secure cryptoprocessor
* Smart card

Banking|

* Issuing bank
* Acquiring bank

* v
* t
* e

Debt

Instruments|

| Bonds|

* Corporate
* Debenture
* Government
* Municipal

|

Loans|

* Business loan
* Consumer lending
* Loan shark
* Payday loan
* Predatory lending
* Usury
* Vendor finance

Management|

* Bankruptcy
* Consolidation
* Management plan
* Relief
* Restructuring
* Debt-snowball method
* Debtor-in-possession (DIP) financing
* Loan guarantee

Collection · Evasion|

* Bad debt
* Charge-off
* Collection agency
* Compliance
* Debt bondage
* Debtors' prison
* Distraint
* Garnishment
* Phantom debt
* Strategic default
* Tax refund interception

Markets|

* Consumer
* Corporate
* Government
* Medical
* Municipal
* Venture
* Buyer
* Deposit account
* Fixed income
* Money market
* Securitization

Economics|

* Consumer leverage ratio
* Debt levels and flows
* External / Internal / Odious debt

* Default
* Insolvency
* Interest
* Interest rate

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