@RobertEG wrote:A charge-off is an accounting practice wherein a debt is removed from the creditor's accounting ledger as an asset (an account receivable) and moved to a business loss as a bad debt that is not expected to ever be paid. Ergo, and accounting adjustment of stated profit and loss by the business, and a tax writeoff.
Banking regs usually require that installment loans be charged-off after becoming 180 days delinquent, and revolving credit be charge-off after becoming 120 days delinquent.
The purpose of those requirements is to prevent companies from overstating their real assets to their shareholders and potential investors.
Taking of a charge-off does not affect the continued obligation of the consumer for the entire debt. The real relevance to the consumer is that the creditor can then report to the CRA the fact of their having taken that measure, which informs others that the creditor has determined that the consumer is unlikely to ever pay the debt.
If the consumer does pay the debt after a CO, the creditor must then adjust their books to showi receipt of the asset. That is irrelevant to the consumer.
^This
However, if it is paid the OC should report the balance as zero and note that it was paid after chargeoff. Typically an OC will sell the debt to a debt buyer. When that happens the balance is also reported as zero and the account is noted as transferred or sold.
