Short answer: a charge-off is an accounting step: the lender classifies the loan as a loss and takes it off its books as an asset. For banks, federal banking agencies' policy is to do this when a closed-end retail loan, such as a personal installment loan, is 120 days past due, or an open-end account is 180 days past due (FFIEC policy, 65 FR 36903). It does not cancel the debt: collectors can still try to collect it, and debt collection rules use the charge-off date as one of the dates to itemize what is owed (12 CFR 1006.34(b)(3)). A charged-off account can be reported for seven years, counted from a date tied to when you first fell behind (15 U.S.C. 1681c).
When a loan is charged off
The 2000 policy of the federal banking agencies says closed-end retail loans that become past due 120 cumulative days, and open-end retail loans past due 180 cumulative days, from the contractual due date should be classified Loss and charged off, no later than the end of that month. A loan with non-real estate collateral may instead be written down to the collateral's value, less cost to sell, if repossession is assured and in process (FFIEC policy). The policy covers the banks and savings institutions those agencies supervise, and an institution may adopt a stricter internal policy (FFIEC policy). Other lenders set their own timing.
After the charge-off
- The lender may collect or sell. A creditor may use its own collectors, refer the debt to an outside collector, or sell it. Companies that buy past-due debts and collect them are often called debt buyers (CFPB).
- You get validation information. A debt collector must give you validation information, which can itemize the debt from the charge-off date (12 CFR 1006.34(b)(3)). Your rights with collectors are in debt collector rights on a loan.
- Old debt has its own limits. State law sets how long you can be sued over a debt, and that clock is separate from credit reporting; see time-barred loan debt.
How long it stays on your credit report
Accounts placed for collection or charged to profit and loss generally cannot be reported once they are more than seven years old. The seven years begin 180 days after the start of the delinquency that led to the collection or charge-off (15 U.S.C. 1681c(a)(4) and (c)). The limit does not apply to reports used for a credit transaction of $150,000 or more and a few other cases (15 U.S.C. 1681c(b)). Because the start is tied to the original delinquency, a later sale or payment does not restart it.
Example only; made-up dates to show the counting. First missed payment due March 1, 2026, never brought current:
| Date | What happens |
|---|---|
| March 1, 2026 | Delinquency begins |
| June 29, 2026 | Past due 120 days |
| By June 30, 2026 | Charge-off, for a bank following the policy (end of that month) |
| August 28, 2026 | Seven-year reporting period begins (180 days after the delinquency began) |
| August 28, 2033 | Seven years later: the charge-off can no longer be reported, outside the exceptions |
Settle or pay in full?
Example only: a $4,000.00 charged-off balance.
| Choice | You pay | What to know |
|---|---|---|
| Pay in full | $4,000.00 | The account is resolved; ask how it will be reported as paid. |
| Settle for less | $2,400.00 | $1,600.00 is forgiven. A canceled debt may be taxable income (IRS); see cancelled loan debt and taxes. This is not tax advice. |
- Get any settlement offer in writing before you pay, including the amount, the deadline and that the payment resolves the debt.
- Make sure you are paying the company that now owns or collects the debt; if you are unsure, ask for validation first.
- Either way, the charge-off history stays for the reporting period above. Check how it is shown afterwards; see check your credit report.
This guide explains federal rules in general terms and is not legal advice.
Start your loan request How our service works
Disclosure: Modern Lending Solutions is not a lender, loan broker or agent for any lender or loan broker, and does not make credit decisions. Any compensation we receive is paid by participating lenders, only for advertising services. This guide is general information, not financial or legal advice.
Sources
- Federal banking agencies: Uniform Retail Credit Classification and Account Management Policy, 65 FR 36903 (June 12, 2000)
- Regulation F, 12 CFR 1006.34(b)(3): itemization date (includes the charge-off date)
- CFPB: What is a debt collector and why are they contacting me?
- 15 U.S.C. 1681c: information excluded from consumer reports (seven year limit)
- IRS: Topic no. 431, Canceled debt: is it taxable or not?