A charge-off by a creditor is simply an internal accounting measure that they can take once a debt has reached the stage that they consider it to most likely be "uncollectible."
It permits them to shift the debt out of their accounts receivable ledger, which is an asset, into a bad debt portion of their ledger, which is not a taxable asset.
Charge-off statutes are enacted for the public interest purpose of having companies accurately report their real assets as opposed to assets that are doubtful.
That is important to potential investors when evaluating the strenght of a company.
A charge-off does not affect the consumer's continued obligation for the entire debt. The entire amount remains reportable as a debt balance due, and they or their debt collectors/heirs in ownership may continue to attempt collection of the entire amount.
If the consumer does ultimately pay, the party who charged-off the debt must then reclaim the payment as an asset, but that is all entirely between the creditor and the IRS.
For all intents and purposes, a charge-off is just a bad ding on your CR that has no bearing upon the debt obligation or collectibility.
Once the creditor chooses to report the fact of their charge-off, they must provide the DOFD on the account to the CRA, thus enabling the CRA to determine when the reported charge-off must be excluded from the consumer's credit report.
