What a charge-off means, and whether you still owe it

When an account goes unpaid long enough, the lender may charge it off: it writes the balance off its books as a loss. Federal credit reporting law calls this an account "charged to profit and loss." It is an accounting step on the lender's side.

You can still owe it

A charge-off does not cancel the debt. The lender can keep collecting, hire a collector, or sell the debt. Whether a debt has been canceled for tax purposes is a separate question; IRS Publication 4681 lists the events that count, such as an agreement to settle for less or a creditor's decision or policy to stop collecting (see settled debt and taxes).

How long it can be reported

A charged-off account can be reported for seven years. Under the Fair Credit Reporting Act, those seven years start 180 days after the delinquency that led to the charge-off began. The lender must tell the bureaus the month and year that delinquency began within 90 days of reporting the charge-off, and a collector or buyer that later reports the same debt meets that rule by reporting the same date.

So the clock runs from the first missed payment you never made up (see late payments). A charge-off, a sale or a later payment does not restart it. If a later company reports a newer date, dispute it (see how to dispute a credit report error).

The time limits do not apply to a report used for credit or life insurance of more than $150,000, or for a job that pays more than $75,000 a year.

One debt reported twice

The CFPB lists "same debt listed more than once, possibly with different names" among the common errors to look for. After a charge-off the same debt can appear under the lender and again under a collector. If both show a balance owed, dispute the one that is wrong.

What a collector must tell you

If a collector contacts you about a charged-off account, its validation notice must itemize the debt from a reference date, and the charge-off date is one of the five dates the rule allows. The itemization shows interest, fees, payments and credits since that date, which tells you how the balance got to what the collector now asks for. You have 30 days to dispute it in writing.

Paying a charge-off

Paying or settling updates the balance; it does not remove an accurate entry or restart the seven years. If you settle for less, the forgiven part may be taxable. In some states a payment on an old debt can restart the time a creditor has to sue, so check the statute of limitations first.