Credit Cards

When a consumer becomes severely delinquent on a debt, the creditor may declare the debt to be a charge-off. It will then be listed as such on the debtor's credit bureau reports. It is one of the worst possible items to have on your file. The item will include relevant dates, and the amount of the bad debt.

A charge-off is considered to be "written off as uncollectable." To banks, bad credit cards / bad debts and even fraud are simply part of the cost of doing business.

However, the debt is still legally valid, and the creditor can attempt to collect the full amount. This includes contacts from internal collections staff, or more likely, an outside collection agency. If the amount is large, there is the possibility of a lawsuit or arbitration.

In the US, as the charge off number climbs or becomes erratic, officials from the Federal Reserve take a close look at the finances of the bank and may impose various operating strictures on the bank, and in the most extreme cases, may close the bank entirely.