When a debt is owed to a creditor, it is shown in their accounting ledger as a "receivable asset."
That asset becomes part of their net statment of assets.
Federal regs mandate that a debt that has become delinquent to the extent that it is no longer expected to be paid (usually 120+ days for a loan, or 180 days late for a credit card) must be removed from their accounts receivable assets and moved to a non-receivable bad debt.
That prevents a business from overstating their assets to stockholders or potential investors.
Taking of a charge-off does not relieve the consumer from continued obligation to pay the entire debt, and the creditor can continue to report the delinquency of charge-off current status until it is paid. Even if paid, the reported charge-off continues to be included under the payment history profile as a prior derog, and thus continues to impact scoring under payment history.
A charge-off is required to be excluded from a consumer's credit report no later than 7 years plus 180 days from the date the consumer first became delinquent on the debt, and therafter remained delinquent until the charge-off was taken.
In the posted scenario, the date they reported a charge-off (Sept 2012) is not determinative of when the charge-off must be excluded.
The DOFD must have preceded the date of the charge-off (usually by 4-6 months), and thus the DOFD is likely mid-2012.
If the creditor will no longer accept payment, that means either they have cancelled the debt or they have sold the debt to another.
In either event, they must update the current balance to $0, but that does not remove the charge-off until it has reached its exclusion date of approx 7 - 7/12 years from the reported DOFD.
