The Short Answer
A "charge-off" on your credit report means the creditor has written the debt off their books as a loss for tax and accounting purposes — it does not mean you no longer owe the money. The debt is still very much alive, and the creditor can continue collecting or sell the account to a collection agency. If you're filing for bankruptcy, you must list every charged-off debt on your creditor schedule, just like any other balance you owe.
One of the most frequent calls we get at our office is, “What does it mean when it says, “charge off”? Do I need to list this on my list of creditor’s?” The answer is always “yes”!
As you are perfectly aware, once you owe a debt, the creditor will relentlessly try to collect the money that you owe them. Although certain laws govern how far they can go trying to collect a debt, we know they will call, send letters, then call again; day after day! After a certain amount of time (this will depend on the company policy and practices) after being unable to collect the debt the creditor is going to “charge off” your debt. This is done primarily for their tax purposes; they are telling the IRS that they have just chalked it up that you have no intention of paying off that debt. It’s a loss in their books for accounting purposes.
Does that mean that you no longer owe the debt? No! Just because they charged the debt off doesn’t wipe away the fact that you still owe that company money. They can charge your account off and still attempt to collect the debt. More likely, they can transfer or sell the debt to a collection agency for pennies on the dollar and the collection agency will then try to collect on the debt. There are companies that actually make a living off of buying “bad debt” and then trying to ruthlessly collect on that debt to make money.
Remember, a charge-off is really just used for “bookkeeping” purposes; it has nothing to do with the fact you still owe money. If you are completing your bankruptcy, we strongly suggest you list all of your debts including those that state they have been “charged off”!
Key Takeaways
- A charge-off is an accounting and tax move by the creditor, not a legal forgiveness of your debt.
- You still legally owe the full balance after a charge-off, and collection efforts can and usually do continue.
- Creditors frequently sell charged-off accounts to debt buyers for pennies on the dollar, who then aggressively pursue collection.
- A charged-off account will damage your credit report and can remain there for up to seven years.
- If you file bankruptcy, every charged-off debt must be listed on your creditor schedules — leaving one out could mean that debt is not discharged.
- The charge-off status on your credit report and your legal obligation to pay are two completely separate things.
Attorney Insight
The mistake I see most often is clients handing me a creditor list with charged-off accounts missing because they assumed the debt "went away." It didn't — and if we don't list it, that creditor isn't notified of the bankruptcy filing, which means the debt may not be discharged and they can keep coming after you once the case closes. In 28 years of NC bankruptcy practice, I've seen debt buyers purchase charged-off accounts for as little as five cents on the dollar and then pursue the full balance relentlessly. List every debt you owe, regardless of what your credit report calls it.
