What Is a Charge-Off Date and How Do I Remove It?

What Is a Charge-Off Date and How Do I Remove It?
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The charge-off date is the date on which a lender or creditor will write off an uncollectible debt. The value of the loans is deleted from the creditor's books and charged against loss reserves, according to the Board of Governors of the Federal Reserve System. Charged-off accounts are severely delinquent and can be damaging to a debtor’s credit report.

What Does a Charge-Off Mean?

The charge-off date falls after ‌120 to 180 days‌ of missed payments, beginning with the date when the last payment is made by a delinquent borrower. The original creditor has determined that repayment is unlikely at this point. It will no longer receive any payment from the debtor. A charged-off account is forwarded to a debt collection agency or third-party debt collector for additional collection attempts. The debt collector is obligated to send you a debt validation notice of your unpaid debt within ‌five days‌ of first contacting you.

How Will a Charge-Off Affect My Credit?

It's reported to the credit reporting agencies (Experian, Transunion and Equifax are the three primary agencies) as a bad debt when a creditor charges off an account. The account will be rated as “9,” which is the code or designation for a charge-off. The rating will be “I-9" if the account is an installment loan, such as an automobile loan; the “I” stands for installment. Revolving accounts, such as credit card accounts, are rated as “R-9.”

This information may not show up on the records of all three credit reporting agencies, but it’s negative information, and it will have a detrimental effect on your credit when it does. Charge-offs can lower a credit score significantly, making it difficult to receive credit in the future. A charge-off becomes less damaging the longer it remains on a credit file.

When Does a Charge-Off Go Away?

Charge-off accounts will remain on a debtor’s credit file for approximately ‌seven years‌. They're supposed to be removed from a credit file automatically after this time.

Accounts that aren't removed can be disputed with the credit reporting agency or credit bureau. This should be done in writing. The debt collector should explain the process for doing so in the debt validation notice.

The Federal Trade Commission warns that credit repair companies may mislead you into thinking they can remove the charge-off from your credit report. You'll want to avoid falling for these scams.

Is a Charge-Off Worse Than a Collection Action?

Collection agencies can pursue legal action through the courts and get judgments against debtors when they receive charged-off accounts. A collection agency can get a bank levy or wage garnishment or even place a lien on real estate owned by the debtor when it has a judgment.

These practices can vary from state to state. Bank levies allow collection agencies to take money from a debtor's bank account, and wage garnishments allow them to take a portion of the debtor’s income from each paycheck.

Is There a Statute of Limitations for Charge-Offs?

A statute of limitations is a defined window of time during which a debt collector or creditor can file a lawsuit against a debtor to try to collect money owed, according to the Consumer Financial Protection Bureau. A collection agency can continue to collect on an outstanding debt indefinitely, but it can't pursue legal action beyond the statute of limitations.

Each state has its own time frame for statutes of limitations. It depends on the type of debt. The primary types of debts are oral contracts; written contracts, such as personal loans and student loans; promissory notes and open-end accounts, such as credit card debt.

Lexington Law publishes a list of these statutes for each state so you can see where you stand with yours if necessary. It can vary significantly. It's ‌10 years‌ for a written contract in Missouri, shrinking to just ‌three years‌ for the same type of contract in North Carolina. After the statute of limitations has passed, collection activities are limited to phone calls and written correspondence.

Should I Pay Charged-Off Accounts?

Unfortunately, a charged-off debt will remain on your credit file and credit history until the seven-year time frame has passed even if you pay off the delinquent debt, but the account is then rated as a paid charge-off.

The seven-year statute will also restart if you make a payment on collection accounts but don't completely pay it off. You might be three years into the statute of limitations when you make that single payment with good intentions, but now the debt collector has seven more years to pursue you for the money rather than the four remaining in the previous statute. It extends your period of having bad credit.

Of course, you've stopped the debt collector in its tracks if you can pay off the full amount of the debt all at once.