A charge-off is not the cancellation of the debt. It is simply their reporting to your file of the fact that they have made the determination, for accounting and tax benefits to them, that the consumer is unlikely to pay the debt. In accounting lingo, they have stated that they consider the debt to have become "uncollectible," whcih simply permits them to shift the debt out of their account receivable assets over to bad debt, thus reducing their tax liability.
The taking of a charge-off does not excuse a penny of the debt. They can continue efforts to collect the full debt, assign collection to a debt collector, or sell the debt.
The new owner can then attempt to collect the full amount.
When a creditor sends the IRS and the consumer a 1099c, that is their statement that they have legally cancelled the debt. It is gone.
No one can thereafter attempt to collect.
The IRS considers cancelled debt as pseudo "income" to the consumer, and thus requires the consumer to pay tax on the cancelled debt if it is at least $600.
Tax liabiliby for any cancelled debt can be excused by the IRS if the consumer shows them that they were insolvent at the time of the cancelled debt, meaning their liabilites exceeded their assets. The IRS will require an accounting of assets and liabilities if the consumer asserts insolvency.
