A charge-off and a write-off sound like two ways of saying the same thing, but they’re actually two very different things.
The term “charge-off” is financial jargon describing when a credit card account becomes 180 days past due.
At the charge-off point, a credit card company is required to reclassify the account for accounting purposes from a “performing” asset to a “non-performing” asset for the bank.
They also list your account as “charged off” on your credit report.
What’s important to understand is after a credit card account gets reclassified as a charged off account, the credit card company still reserves the right to pursue collection of the outstanding balance.
Many people make the mistake of believing their credit card debt is forgiven when their account is charged off. Unfortunately it’s not quite that easy. You’re still responsible for the outstanding balance.
After an account is charged off, credit card companies handle things differently from one to the other:
- Some credit card companies continue with their own in-house collection efforts on that charged off account.
- Some outsource the charged off account to a collection agency, but the credit card company still retains ownership of the account.
- Some credit card companies cut their losses and sell the charged off account to a debt purchaser.
A “write-off” on the other hand is when a creditor forgives a portion of the balance that is legitimately owed.
For example, if you have a credit card balance of $20,000 and the creditor agrees to accept $8,000 to settle the account in full, that means they write off the remaining $12,000 balance and call it even.
If you’re seeking debt relief, obviously what you want is a write-off.