CHARGE OFF Meaning and
Definition
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A charge off refers to a financial term that signifies a creditor's decision to remove a debt from its books as an uncollectible asset. When a borrower defaults on a loan or fails to make payments for a specific duration, the lender may determine that the chance of recuperating the outstanding balance is highly unlikely. In such cases, the lender may choose to write off or charge off the debt. This action enables the creditor to declare the debt as a loss and remove it from their balance sheet.
Charge off typically occurs after a certain period of delinquency, often around six months. Once the charge off takes place, the lender may choose to transfer the delinquent account to a collections agency or sell it at a fraction of the original amount to a third-party debt buyer. However, even if the debt has been charged off, it does not absolve the borrower of their legal obligation to repay the outstanding balance.
The charge off has several consequences for both the creditor and the borrower. For the creditor, it allows them to claim a tax deduction for the charged-off amount. On the other hand, the borrower's credit score and creditworthiness are severely impacted by a charge off, making it significantly difficult to obtain new credit or loans in the future. Therefore, it is advisable for individuals to avoid charge-offs by making timely payments or working with the lender to negotiate alternative payment arrangements.
Common Misspellings for CHARGE OFF
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Etymology of CHARGE OFF
The term "charge off" has its origins in accounting and finance. It comes from the verb "charge", meaning to record an expense or debt in an account, and the particle "off", indicating the removal or cancellation of an item from a list or balance sheet. In the context of finance, when a debt becomes uncollectible or is deemed unlikely to be paid, it is removed from the lender's balance sheet by marking it as a "charge off". This act recognizes the debt as a loss for accounting purposes, allowing the creditor to claim it as a bad debt expense for tax purposes. Hence, "charge off" refers to the process of removing a debt from an account and designating it as a loss.
Idioms with the word CHARGE OFF
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charge off
The idiom "charge off" typically refers to when a company writes off a debt or financial obligation as uncollectible and removes it from their accounting records. It is often used in financial contexts to refer to when a creditor gives up on collecting a debt and classifies it as a loss.
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charge off as
To decide or determine that something is no longer considered relevant, important, or useful.
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