Charge-Off
When a lender writes off a severely delinquent debt as a loss after it goes unpaid.
What is Charge-Off?
A charge-off occurs when a creditor — typically after 120 to 180 days of non-payment — declares a debt unlikely to be collected and removes it from their books as an asset. This is an accounting action by the lender, not debt forgiveness: the borrower still legally owes the money. After a charge-off, the account may be transferred to a collection agency. Charge-offs are among the most damaging entries on a credit report and remain for seven years from the date of first delinquency, severely reducing a credit score.
Example
A consumer stops paying a $4,000 credit card. After 180 days, the issuer charges off the account and sells the debt to a collection agency for $800. The consumer's credit report shows both the original charge-off and a new collection account.
Source: Consumer Financial Protection Bureau — Debt Collection