Charge-Off

In the United States, lenders typically charge off credit card debts after around 180 days of missed payments, and many instalment loans, such as personal loans, after around 120 days. The lender records the debt as a loss in its accounts, but the borrower still legally owes the money.

After a charge-off, the lender may continue trying to collect the debt itself, pass it to a collection agency or sell it to a debt buyer for a fraction of its value. The charge-off is recorded on the borrower's credit report and generally remains there for seven years from the original missed payment, significantly lowering their credit score.

For example, a person who stops paying a credit card with a balance of 4,000 may find that, after six months, the account is charged off and later sold to a debt collection company, which then contacts them to recover the money.

The equivalent idea in the United Kingdom and many other countries is a default, where the account is formally marked as defaulted on the credit file after several months of missed payments. A default usually stays on a UK credit file for six years.