Charge Off and Credit Card Debt What it Means to You


by Michael

CHARGE OFF:

The term “charge off” describes an accounting function followed by your lenders. When speaking of revolving consumer credit card accounts, a charge off occurs when the credit issuer either chooses, or must, recognize an unpaid loan balance as a loss.

For lenders, losses are bad news. The bad news gets reported and can affect anything from loan loss allowance/reserves, securitization, liquidity, even solvency.

Because of the bad news nature of a charge off, your credit card issuer will generally wait until the maximum time allowed to charge off your unpaid debt. The time frame for your creditor to recognize the loss on your unpaid credit card balance is outlined in Generally Accepted Accounting Principles (GAAP) and is typically 180 days of consecutive nonpayment, or what the Office of the Comptroller of the Currency (OCC) has designated as “seven zero billings”. There will be instances where charge off will seem to occur at 210 days of nonpayment.

Most lenders will wait as long as is allowable to take the charge off hit to their books, but they can take the hit earlier than 180-210 days. It’s just not a common practice.

What does this mean to you?

While charge off is an important accounting function for lenders, it is also a major event that applies to, and will affect, the efforts of a consumer who is experiencing financial difficulty.

While you are trying to navigate your inability to pay all of your debts and when evaluating the different debt relief options available to you, understanding the timing and affects of your accounts charging off will give you a needed advantage in your planning and timing.

The period leading up to, during, and after a charge off of your unsecured debts will impact:

Each one of the bullet items above are deserving of a separate article and will be posted on debt bytes as I complete them. If an above bullet is a click-able link, it will lead to coverage of that topic individually.

If you would like to speak with a pro for free to discuss your specific situation and what you may be able to do to deal with it, Click: Free Consultation Request. You will be contacted by a CRN specialist who can assist you in identifying your options and next best steps related to pre or post charge off debts.

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