What does a “charge off” mean?

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What does a “charge off” mean?

Do I still have to pay?

Asked on August 6, 2010 under Bankruptcy Law, New York

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

A "charge off" means that a creditor (which could be a bank, a merchant, a credit card issuer, a contractor or service provider, etc.) has concluded that a debt, or at least part of the debt, will never be collected. When it does that, it "charges off" or "writes" off that amount and is no allowed to take a tax loss for the amount. (Of course, a deduction of, say $100--if $100 were written off--would really only save around $25 - $35 of taxes, so the creditor is net behind.)

Once a debt has been charged off, it cannot be collected; the creditor cannot have its cake and eat it, too, by taking a tax advantage and still trying to collect.

Note that having a debt foregiven may be taxable income; it may be the case that if, say, $1,000 of debt against you was charged off, that you have to report and pay taxes on $1,000 of gain. A tax consultant or preparer can advise you as to this.


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