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Charge off
A charge-off or chargeoff is the declaration by a creditor
(usually a credit card account) that an amount of debt is unlikely to be
collected. This occurs when a consumer becomes severely delinquent on a debt.
Traditionally, creditors will make this declaration at the point of six months
without payment.
The purpose of making such a declaration is to give the bank
a tax exemption on the debt. Bad debts and even fraud are simply part of the
cost of doing business. The charge-off, though, does not free the debtor
of having to pay the debt.
A charge-off is one of the most adverse factors that can
be listed on a credit report. It will then be listed as such on the debtor's
credit bureau reports (Equifax, for instance, lists "R9" in the "status" column
to denote a charge-off.) The item will include relevant dates, and the amount of
the bad debt.
While a charge-off is considered to be "written off as
uncollectable" by the bank, the debt is still legally valid, and remains as such
after the fact. The creditor legally has the right to collect the full amount
for a time periods permitted the laws of places of the location of the bank and
where the consumer resides. Depending on the location, this amount of time may
be a certain number of years (e.g. 3 to 7 years), or in some places,
indefinitely. Methods of collection that can be used include contacts from
internal collections staff, outside collection agencies, or if the amount is
large, there is the possibility of a lawsuit or arbitration.
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