Accounting recognition that a lender no longer expects to collect a debt in full, even though collection efforts may continue.
In lending, a charge-off is the accounting recognition that a debt is no longer expected to be collected in full. The lender removes the balance from the performing asset side of its books, but that does not automatically mean the borrower no longer owes the money.
Charge-offs sit near the end of the credit-deterioration path. They affect lender earnings, credit-loss reporting, collection strategy, and the borrower’s credit record.
An account usually moves through missed-payment stages first. After prolonged nonpayment and internal policy or regulatory thresholds, the lender may charge the debt off.
| Stage | What it usually means |
| — | — |
| Delinquency | Payments are overdue but the loan is still being monitored as late rather than written off |
| Default | The borrower has crossed a more serious contractual failure point |
| Charge-Off | The lender recognizes the debt as unlikely to be collected in full for accounting purposes |
After charge-off, the lender may still pursue collection, sell the debt, or recover part of the balance later.
A credit-card borrower stops making payments for several months. The issuer eventually classifies the account as a charge-off, records the loss for accounting purposes, and may either continue internal collections or sell the claim to a debt buyer.
The accounting treatment and the borrower’s legal obligation are not the same thing. A charged-off balance may still be pursued.
Late payment or early delinquency comes first. Charge-off is a later-stage recognition that collection prospects have materially deteriorated.
Delinquency: Earlier stage of missed-payment stress.
Default: Serious contractual failure that often precedes or accompanies charge-off.
Debt Recovery : Collection effort that may continue even after charge-off.
Bad Debt: Broader accounting concept for receivables unlikely to be collected.