What Does It Mean To Have Your Debt Charged Off?

What Is a Charge Off?

A charge-off happens when a lender decides that a debt is unlikely to be repaid. This usually happens after several months of missed payments.

At that point, the lender marks the account as a loss in their books, which helps them for tax purposes. But that doesn't mean the debt goes away. The person who borrowed the money still owes it, and the lender — or a debt collector — can still try to collect it.

Charge-offs are usually reported to the major credit bureaus, and can hurt your credit score.

How Do Charge Offs Impact Your Credit Score?

A charge-off on an auto loan or other debt can have a serious impact on your credit. It tells lenders that you stopped making payments and the loan was written off as a loss. This kind of negative mark can lower your credit score — sometimes by 100 points or more, depending on your credit history.

A charge-off doesn’t just disappear. It can stay on your credit report for up to seven years from the date the account first became delinquent. During that time, it may be harder to get approved for new credit, like a car loan, mortgage, or credit card, and you may face higher interest rates.

Do I Still Owe Money if My Debt or Car Loan Is Charged Off?

Yes, you usually still owe the money even if your car loan or debt is charged off. A charge-off doesn’t erase the debt. It just means the lender has decided they’re unlikely to get paid and has written the loan off as a loss in their records.

In many cases, once a loan is charged off, the lender sells the debt to a debt collector. That collector then becomes responsible for collecting the remaining balance. Though the original lender is no longer involved, the debt collector can still contact you to try to collect the debt. They may also report the charged-off account to the credit bureaus under their name, which can further damage your credit.

So while the original lender may have moved on, the debt itself usually hasn’t gone away. It just changes hands.

Debt Collection Tactics After a Charge-Off

If your debt has been charged off and sold to a debt collection agency, you'll likely receive phone calls and letters trying to collect on the debt.

If this contact isn't successful, the debt collector may decide to sue you to try to get a court order called a judgment. With a judgment in hand, the debt collector may be able to garnish your wages, freeze your bank account, or put a lien on your property.

Should I Pay Charged Off Accounts?

Many people choose to pay or settle charged-off debts to stop collection calls, reduce the risk of being sued, or start rebuilding their credit.

Paying the debt won’t remove the charge-off from your credit report, but it may look better to future lenders if the balance is marked as paid or settled.

Before making a payment, it’s a good idea to check if the debt is still within the statute of limitations in your state — that’s the time period when a collector can legally sue you for the debt.

In some cases, people explore bankruptcy as a way to get relief from multiple charged-off debts and other overwhelming bills.

If you're considering filing bankruptcy, but you can't afford an attorney, take two minutes to see if you're eligible to use Upsolve's free filing tool.

Car Loan Charge-Offs vs. Repossession

Car loan charge-offs and repossessions are both signs of serious trouble with a loan. That said, they aren’t the same thing, and they don’t always happen together.

• Repossession happens when you fall behind on your car payments and the lender takes back the vehicle.

  • Since car loans are secured by the vehicle itself, the lender has the right to repossess the car if you stop paying. Once the lender has the car, they may sell it to recover some of the money you owe.

• A charge-off is more about accounting. If you haven’t made payments for several months, the lender may charge off the loan. This means they write it off as a loss on their books.

  • It doesn’t erase the debt — you still owe the remaining balance. The debt may be sent to a collection agency, and it can continue to impact your credit.

In some cases, both can happen: The lender repossesses the car, sells it, and then charges off the remaining balance you still owe. That leftover amount is often called a deficiency balance, and collectors may try to collect it from you.

Both repossessions and charge-offs can stay on your credit report for up to seven years and make it harder to qualify for new credit in the future.

How Are Charge Offs Regulated? 

Charge-offs are regulated by government agencies to make sure banks follow consistent rules. For auto loans — which are considered “closed-end” loans — lenders are usually required to charge off the debt after 120 days of missed payments. For credit cards and other “open-ended” loans, the deadline is typically 180 days.

These timelines come from federal guidelines, including the FDIC’s Uniform Retail Credit Classification and Account Management Policy. The Federal Reserve, FDIC, and other regulators use these standards to help banks manage risk and stay accountable.

Even though 120 or 180 days is the general rule, lenders can report a charge-off sooner if they believe the debt won’t be collected. The guidelines encourage reporting losses as soon as they’re clearly uncollectible.

Does the Statute of Limitations Stop Collection of Charge-Off Debt?

The statute of limitations doesn’t erase a charged-off debt, but it does limit how long a creditor or debt collector can sue you for it. Once the time limit passes, the debt is considered “time-barred.” That means collectors can still ask you to pay, but they’re not supposed to sue you.

Unfortunately, some collectors do file lawsuits on time-barred debts anyway. If that happens, it’s usually up to you to respond to the lawsuit and point out that the statute of limitations has expired. If you don’t, the court may still issue a judgment against you — even though the debt is too old to be legally enforced.

Each state has its own rules about how long creditors have to sue, and those timelines can range from a few years to more than a decade. Also, some actions — like making a payment or admitting you owe the debt — can restart the clock. That’s why many people in this situation choose to talk to a legal aid organization or consumer protection attorney before taking any action.