The term charge off describes an accounting function followed by your lenders. When speaking of revolving consumer credit card accounts, a charge off occurs when the credit issuer either chooses to, or must, recognize an unpaid loan balance as a loss.
Losses are bad news for lenders. The bad news gets reported and can affect anything from loan loss reserves, securitization, liquidity, even solvency.
Because of the bad news nature of a charge off, your credit card issuer will generally wait until the maximum time allowed to charge off your unpaid debt. The time frame for your creditor to recognize the loss on your unpaid credit card balance is outlined in Generally Accepted Accounting Principles (GAAP) and is typically 180 days of consecutive nonpayment, or what the Office of the Comptroller of the Currency (OCC) has designated as “seven zero billings”. There will be instances where charge off will seem to occur at 210 days of nonpayment.
Most lenders will wait as long as is allowable to take the charge off hit to their books, but they could choose to take the hit earlier than 180-210 days. It’s just not a common practice.
Charge Off Impacts Your Credit Report
The term charge off has been escalated from a simple accounting function to a designation you find on your credit reports relating to unpaid collection accounts. The charge off event now has an extra implication for lowering your credit scores (though months of missed payments leading to a charge off causes most the damage). And the charge off event now has an impact on when and how you go about negotiating settlements, or whether you can consolidate your bills with any meaningful impact.
While you are trying to navigate your inability to pay all of your debts, and when evaluating the different debt relief options available to you, understanding the timing and affects of your accounts charging off will give you a needed advantage in your planning and timing.
The period leading up to, during, and after a charge off of your unsecured debts will impact:
- Debt collection efforts with your original creditor
- Debt collection with an outside collection agency
- Debt buyers and subsequent collection efforts
- Debt Settlement/Debt Negotiation
- Credit Reporting
- Debt Management Plans
- Risks of being sued on unpaid debt
- Deciding to file bankruptcy
- Delaying a bankruptcy
Each one of the bullet items above is deserving of a separate article. I will be posting some consolidated information covering credit card charge off in coming months.
Planning Your Debt Settlement With A Charge Off
Your lenders, especially credit card banks, tend to be the most open to settling with you just before they charge off your account. Two huge benefits to settling a debt before charge off are:
- You can often prevent having to deal with external debt collectors.
- You can prevent being sued for collection.
You will need to be prepared to pay a pre-charge off credit card settlement in a lump sum, or over a 90 day period, as there is a federal OCC rule that prevents creditors from giving you more than 94 days to pay a settlement if they have not charged off the debt.
After charge off occurs there is typically more settlement and payment flexibility that comes from third party collectors, and sometimes the creditors themselves.
My experience working with people to build and implement their debt settlement plan is to be very selective with the accounts you settle before charge off, and the ones you settle afterward. That is because most of us do not have all the money available to settle all our debts within the first 6 months of being late.
If you have multiple accounts to settle, and you need more than six months to pay them, check out this helpful video about settling several accounts with payment terms.
If you would like to speak with a professional about what to do with debts not yet charged off, or that have already charged off, you can request a free consult with me.
If you have questions about anything covered above, and would like feedback without scheduling a call, post in the comment section below.
Hi Michael
Back in 2011 I used Careone for debt settlement. The legal firm they used was Persels and Associates, they negotiated the settling of my debt and was paid off 7/2013. I just received a letter from a collection agency for the part of the debt that it was my understanding would be written off. I have reached out to the collection agency and told them that this debt was settled back in 2013. I pulled my credit report back in 2015 and this was removed as a collection write off. I have an email from Persels and Associates stating that this was paid and a copy of 2 cancelled checks that the credit card company cashed. Unfortunately, I do not have copy of the check for the final payment. I do have an email from Persels & Associates stating that this was paid in full per the amount that was negotiated. Can they come after me for the amount they agreed to write off?
Who is trying to collect on one of those old accounts today?
Hello Michael,
I am over 120 days on my credit one credit card. I just received an email stating this is the last correspondence before charge-off. They say they have payment options for me and talk about possibly paying an amount less than the $2306, that I owe. That was Feb 2nd, 2022. I am in a financial bind but am paying off my other Credit One card that is still usable. I have been reading your info which has helped in my decision making of trying to get a payment plan of some sort. What do I do from here? I do want to try to pay, but i don’t have hundreds to give right now. but don’t want my credit to get more messed up with a charge-off.
The credit damage from not paying for this long has already damaged your credit to a point that I typically would suggest reaching a settlement to get this to show a zero balance owed. That would be better for your credit faster than getting set up on monthly payments with a 4 month delinquent account.
How long until you are able to pull half the amount owed together to settle?
Hi,
I received a letter from Chase bank offering me to “pay less than the unpaid balance.” Unpaid balance is $11,137.92 ($1,137.92 is overage charges) – this has been a charge off on my report since Sept 2016. Today, they are offering to pay $3898.71, and reporting t the credit agencies that it will be “Paid for less than the full balance”. How will this affect my score if I pay the settlement? Thank you for any advice
Is this the only unresolved negative on your credit reports, or are there others? If so, how many others?
Hi Michael. I have 2 credit cards that’s a charge off from Capital One on my credit from 2015. One of the debt collectors who last contacted me was Firstsource Advantage, the balance due on this one is $1,089. The other debt collecter is Portfolio Recovery Associates, the balance is $320. Firstsource first offered to settle by paying them 40% of the amount due in November then they offered 30% in December. I was hoping they would go as low as 25% this month but I haven’t heard from them via mail. I have not picked up the phone to communicate with them because I knew I wasn’t in a position to pay them right then over the phone and I didn’t know if it was safe to negotiate over the phone about them taking it off my credit report. I just received a letter from Portfolio Recovery this month asking me to pay $256 of the $320 that’s owed. How would you advice that I handle this to take it off my credit so I can purchase a house? This has a really negative impact on my credit score so please help me on the correct steps to handle this.
You will not be able to get Capital One or Portfolio Recovery Associates to remove the items from your credit reports. You can expect them to update your credit reports to show the accounts have been resolved, and a zero balance owed. You can still reach your credit goals after that, so try not to get hung up on getting these items off, as pay for delete is not common.
Read through a couple of additional resources before you call PRA or First Source:
Negotiating with a debt collector.
Getting your settlements in writing.
I found out that B of A reported a Collection/Chargeoff in March of 2015 for a debt when I was going through a difficult time. The last payment date to B of A was in January 2013 and the account was closed in 2008. I honestly cannot remember if I had settled this one. When would it the 7 year time frame start for it to come off my credit report? Should I try to contact them at this point?
The 7 year credit reporting begins with when payments stopped.
If your goal is to improve your credit situation, I would contact them, but to arrange a settlement for less. How much is owed to BofA?