Many people believe that when a creditor places an account in a “Charge Off” state, that means that they do not owe that creditor. Contrary to that belief, when a creditor charges off your account, you still owe the creditor that debt. What the term or status of “Charge Off” means is that the creditor is saying that it is unlikely that they will be able to collect on that debt. Not that they cannot collect, but that it is unlikely that they will be able to.

Although the creditor has stated that it is unlikely that they can collect, they can, and likely will, still collect. They may sell off the debt to a collection agency, or use their own internal collection efforts. Accounts that have been Charged Off should still be listed in your Bankruptcy petition and schedules because this is still a debt that you owe.

Creditors usually put accounts in a Charge Off status when accounts become severely delinquent, which is usually after about 6 months of non-payment. This is often referred to as one of the most negative types of reporting that can occur against your creditor score.  

The continual hit of delinquent accounts can significantly reduce your credit score. Bankruptcy can help by discharging your debts. Once your debt is discharged, your creditor needs to update the status of the account as discharged rather than delinquent or charged off. This means that the negative status of delinquent or charged off will stop ticking away at your credit score. Bankruptcy can give you a fresh start and this is just one of the ways that it may be able help you.