Understanding Credit Card Charge-Offs and Debt Collection

A charge-off occurs when a cardholder becomes seriously delinquent and a creditor records the debt as unlikely to be recovered. Credit bureaus may reflect this status on the borrower’s credit report. Although the lender writes the debt off for accounting purposes, the debt may still be legally enforceable. The creditor or an external collection agency can continue seeking payment within the period allowed by law. For larger outstanding amounts, the creditor may pursue legal action or arbitration. Banks also treat bad debts and fraud losses as part of the cost of doing business.

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