Charge-Off

Reviewed 12 August 2026 · Sourced from the Fair Credit Reporting Act, the FFIEC banking agencies, the CFPB and the Internal Revenue Code

What a charge-off actually is

The letter arrives about nine months into the worst stretch of your life. It says the bank has charged off your account. There is still a balance printed on it. Nothing on the page explains what the words mean.

Then the bank's calls stop, which feels like the end of something. Six weeks later a company you have never heard of starts calling about the same balance, and a second entry appears on your credit report under a name you do not recognize.

Lenders are required to report honestly on the quality of what they own. A loan nobody has paid in half a year is not an asset worth face value, and bank examiners do not let an institution keep carrying it as one. Charging off is the entry that moves the balance out of “loans we expect to collect” and into the loss column, offset against a reserve the lender already set aside for exactly this. Written off means the same accounting act, and it misleads people the same way.

Your side of it is a contract, and no accounting entry amends a contract. So the obligation survives, and the lender now has three ordinary choices: keep collecting in house, hire an agency on commission, or sell the paper to a debt buyer for a fraction of face value. That last one is why a stranger calls — and why one debt can sit on your report twice at once: once as the original creditor's closed, charged-off account showing a zero balance, and once as the buyer's collection account showing the balance. Two entries, one debt. That is normal and is not by itself an error.

What it does do is start two clocks and freeze one date in place. Getting those right is the difference between waiting a debt out and accidentally resetting it.

When it happens, and who decides the timing

For banks, credit unions and savings institutions the date is not discretionary. The federal banking agencies set it in the Uniform Retail Credit Classification and Account Management Policy, issued through the FFIEC and distributed by the FDIC as FIL-40-2000. The operative sentence is one line: “Closed-end retail loans that become past due 120 cumulative days and open-end retail loans that become past due 180 cumulative days from the contractual due date should be classified Loss and charged off.”

Two details move the date in practice. The first is the word cumulative — the count is not reset by sending something. The second is how partial payments count: the policy lets an institution treat “a payment equivalent to 90 percent or more of the contractual payment” as a full one, or instead aggregate partial payments. Under the first method, 88 percent of the minimum buys nothing. Which one your lender uses is its choice and is not printed on your statement.

On the report, the charge-off changes the account's status and closes it. It does not replace the 30-, 60-, 90- and 120-day late marks that got you there — those are separate entries, and they stay.

Two clocks run, and they are not the same clock

The most expensive confusion about charged-off debt is treating one number — seven years — as if it answered every question. It answers exactly one, and not the one about being sued.

Read the last row twice. Both clocks govern what someone else may do — report it, sue over it. Neither voids the contract. A debt invisible on your report and unenforceable in court is still owed, and a collector may still ask for it.

They also normally end years apart, and in the opposite order from what people expect: the lawsuit risk usually expires well before the report entry does. Listing your debts with their dates in the debt overview calculator is the fastest way to see which clock is closest to running out on which account.

The date of first delinquency is the date everything runs from

The most consequential fact on the page is also the one most often gotten wrong — by borrowers, by collection agents, and sometimes by furnishers themselves.

15 U.S.C. § 1681c(a)(4) keeps off a consumer report “accounts placed for collection or charged to profit and loss which antedate the report by more than seven years.” Seven years from what is answered precisely in subsection (c)(1):

The anchor is the commencement of the delinquency — the payment you missed and never made up. Count 180 days from there; the seven years start at the end of it. So the outer limit is roughly seven years and six months from the first missed payment: not from the charge-off, not from your last contact with anyone, and not from the date a debt buyer opened its file.

Congress also made someone responsible for reporting it. § 1681s-2(a)(5) requires a furnisher reporting a charged-off or collection account to tell the credit bureau, “not later than 90 days after furnishing the information,” of “the month and year of the commencement of the delinquency on the account that immediately preceded the action.” That is the field labeled Date of First Delinquency. It is the only date on the entry that controls anything.

Note what is not on that timeline: any date you could change. A payment in 2027 does not move April 2025. Nor does a phone call, a dispute or a settlement.

Re-aging, and the version of it that is a violation

The word covers two different things and only one is wrong. Keeping them apart matters: a collector will sometimes describe the illegal one in the vocabulary of the legal one.

The legitimate meaning: returning an account to current

In the banking policy, re-aging means “returning a delinquent, open-end account to current status without collecting the total amount of principal, interest, and fees that are contractually due.” It is a servicing decision that helps the borrower, and FIL-40-2000 fences it in: the account must have existed at least nine months, the borrower must have made at least three consecutive minimum monthly payments, and “open-end accounts should not be re-aged more than once within any twelve-month period and no more than twice within any five-year period.”

The abuse: moving the reported delinquency date forward

The other kind is a furnisher reporting a later date of first delinquency than the true one, which quietly buys the entry extra years on your report. Sometimes it is deliberate. More often a debt buyer furnishes the only date it has — the purchase date — into the field that is supposed to hold 04/2025.

Either way it violates two provisions. § 1681s-2(a)(1)(A): “A person shall not furnish any information relating to a consumer to any consumer reporting agency if the person knows or has reasonable cause to believe that the information is inaccurate.” And § 1681s-2(a)(5), which does not leave the date open to interpretation. The 180-day rule exists so the start date cannot be manufactured by whoever holds the paper.

The fix is a written dispute to each bureau reporting it, and separately to the furnisher, with whatever dated proof you hold. Keep it to the date field: “the date of first delinquency is reported as 03/2027 and the account went delinquent in 04/2025, contrary to § 1681s-2(a)(5)” is a specific, checkable claim. “This is not mine,” when it is yours, goes nowhere.

What a collector can and cannot do

Once the debt is charged off, the person on the phone usually works on commission or owns the paper outright. The rules are federal and specific.

What they can do

• Call you, write to you and ask you to pay — including on a debt too old to sue over. The CFPB puts it plainly: “In most states, debt collectors can still attempt to collect debts after the statute of limitations expires.”
• Report the account, subject to the same date of first delinquency and the same seven years.
• Sue you, if the statute of limitations has not run. Ignoring a summons is how a debt becomes a judgment and then a garnishment.
• Sell the debt again, which is why the same balance can resurface under a fourth company's name.

What they cannot do

• Sue or threaten to sue on a time-barred debt. 12 CFR § 1006.26(b): “A debt collector must not bring or threaten to bring a legal action against a consumer to collect a time-barred debt.” Note what is missing from that sentence — any requirement that the collector knew.
• Call without limit. 12 CFR § 1006.14(b)(2) gives a presumption of compliance to a collector who calls about a particular debt no “more than seven times within seven consecutive days” and not “within a period of seven consecutive days after having had a telephone conversation.” Past either frequency, the presumption flips to a violation.
• Skip the paperwork. Under 15 U.S.C. § 1692g(a), within five days of first contacting you a collector must send written notice of the amount, the creditor's name, and your right to dispute.
• Keep collecting through a written dispute. Dispute in writing within that 30-day window and § 1692g(b) requires the collector to “cease collection of the debt … until the debt collector obtains verification of the debt” and mails it to you. On an old, resold account, verification is frequently the thing the collector cannot produce.

None of this makes a debt vanish. It is the floor you are standing on, and knowing where it is changes the conversation. The guide to recovering after a financial collapse walks through the order to handle collectors, bank accounts and records in.

What paying, settling and waiting each actually do

Four choices exist. What follows is what each does mechanically — not which one is yours to make.

Pay the balance in full

The balance updates to zero and the status typically changes to something like “paid charge-off.” The entry stays and the date of first delinquency does not move, so the seven years run out on the day they would have anyway. The CFPB is direct: “no one has the right to remove negative information, such as late payments, from a credit report if it is accurate.” What you buy is a zero balance, an end to the calls, and an end to lawsuit exposure on that account.

Settle for less than the balance

Same mechanics, different words. Balance goes to zero and the status typically reads “settled for less than full balance.” The entry and the date stay. The extra consequence is tax, which is the next section.

Send a partial payment or set up a plan

This is the choice with a hidden mechanism attached. It does nothing to the FCRA clock, but it can restart the other one — the CFPB: “Making a partial payment or acknowledging you owe an old debt, even after the statute of limitations expired, may restart the time period.” On a debt already time-barred, one small payment can in some states revive the right to sue over the entire balance, depending on state law and on what was said or signed. If you do not know how old the debt is, that is the fact to establish first.

Do nothing

The entry stays until the seven years expire, and the limitations period runs out on its own. Meanwhile the exposure is real: an in-limitations debt can be sued on, and a suit you do not answer becomes a judgment. Whether interest keeps accruing depends on your contract and your state, not on the charge-off.

What is a rule here, and what is not

What a charge-off does to a score is a separate question, covered in credit score and credit utilization — a charged-off revolving account is normally closed, which removes its limit from your utilization math. Stage 3 · Rebuild covers building a usable file while old entries age off.

The 1099-C, and why a charge-off does not automatically create one

Forgiven debt is income: 26 U.S.C. § 61(a)(11) puts “income from discharge of indebtedness” in gross income, and IRS Topic 431 is blunt — “if your debt is canceled, forgiven, or discharged for less than the amount owed, the amount of the canceled debt is taxable.”

A charge-off is not a discharge

Under 26 U.S.C. § 6050P a lender must report a discharge, and the duty does “not apply to any discharge of less than $600.” But the trigger is a discharge, and 26 CFR § 1.6050P-1(b)(2)(i) defines which events count. There are seven, and every one is a real termination of the debt: a bankruptcy discharge, a foreclosure or receivership, a probate cancellation, a limitations defense “upheld in a final judgment,” an election of foreclosure remedies, an agreement to discharge for less than full consideration, and a creditor decision or defined policy “to discontinue collection activity and discharge debt.”

Moving a balance to the loss column is not among them. That last event is where charge-offs get confused with discharges, and its wording is the point: it requires stopping collection and discharging. A creditor that charges off a balance and keeps collecting has done neither. The charge-off writes the loss into the lender's books; the 1099-C tells the IRS it gave up the right to collect. Topic 431 again: “If a creditor continues to attempt to collect the debt after you receive a 1099-C, the debt may not have been canceled.”

If a 1099-C does arrive: the insolvency exclusion

A settlement is a discharge, so settling for less than the balance can produce a real 1099-C — and still no tax. 26 U.S.C. § 108(a)(1) excludes discharge income where “the discharge occurs in a title 11 case” or “when the taxpayer is insolvent.” Insolvency in § 108(d)(3) is not a court finding but arithmetic — “the excess of liabilities over the fair market value of assets,” measured immediately before the discharge — and subsection (a)(3) caps the exclusion at that excess. Anyone with charged-off debt and little else is frequently insolvent by that definition without knowing the word applies.

The exclusion is not automatic: Form 982 has to be filed. And the IRS gets a copy of every 1099-C, so a form you believe is wrong is something to answer on the return, not throw away.

What trips people up

• Reading “charged off” as “written off my problem.” It is the lender's accounting, not your release. This one costs the most, because it stops people from tracking the dates that do matter.
• Counting the seven years from the wrong date. Not the charge-off, and not the date a collector bought the debt — the clock is anchored to the first delinquency, typically four to six months earlier, plus the statutory 180 days. A collection entry showing a newer delinquency date than the original creditor's entry for the same debt is the signature of re-aging.
• Sending a small payment to “show good faith.” It cannot help the credit-report clock and may restart the lawsuit clock. Establish how old the debt is first.
• Ignoring a lawsuit because the debt is old. The court does not apply the statute of limitations for you. An unanswered summons becomes a default judgment even on a time-barred debt.
• Assuming a charge-off means a tax form is coming. A charge-off is not an identifiable event under § 1.6050P-1(b)(2)(i). A settlement usually is.
• Getting a 1099-C and paying tax on all of it. The insolvency exclusion is arithmetic anyone can run — but only if Form 982 is filed.
• Waiting for old entries to age off instead of building new ones. Time removes the old marks; it does not create a payment history. A secured credit card is the usual mechanism while the charge-offs run out their clock.

The figures on this page are checked against the source that publishes them, and dated. Published rates move after the release named above — the linked source always carries the current number. This page explains a term; it does not recommend a product.