Your credit report includes the history of your loans and repayments, as well as any charge-offs, which creditors report on delinquent balances. Like a bankruptcy filing, a charge-off can seriously damage your credit score and hinder your ability to secure credit. A successful discharge of a bankruptcy case ends your obligation to pay dischargeable debts. However, charge-off and a discharge of bankruptcy are two very different events.
When you file a petition for bankruptcy, the filing is reported immediately to the credit bureaus. The bankruptcy filing remains on your credit report for a minimum of seven years; you can't remove the bankruptcy by having the case dismissed or achieving a discharge of your debts. At the end of the bankruptcy case, a discharge cancels any outstanding debts that the law allows to be discharged. This usually includes credit-card balances, installment loans and personal loans, but not overdue taxes, federally guaranteed student loans or child support obligations.
Charge off is an accounting term that means a creditor now considers a debt to be not collectible. The creditor reports the charge off to the credit bureaus, although the debt remains legal and valid. In most cases, the creditor turns the outstanding balance over to a collection agency, which is allowed to attempt to collect the debt (as long as you haven't filed for bankruptcy protection) on the creditor's behalf. Like bankruptcy, a charge off is considered a "major derogatory" that will lower your credit score until it is either resolved or removed.
Discharge of Debts
When a bankruptcy court discharges a case, a creditor whose debt has been effectively canceled is required to charge off that debt, regardless of the delinquency status. If you contract a debt just before declaring bankruptcy, however, a creditor may file a motion with the bankruptcy court to allow repayment from your assets, or request a stay of the order to cease collection action. The effect of the charge off on your credit report is the same as if the debt had been charged off before the bankruptcy, although a creditor holding a discharged claim is not allowed to pursue the debtor for payment.
A bankruptcy discharge does not prevent you from contracting more debt. If you take out a loan after a discharge, you are obligated to repay the loan, and the creditor is allowed to charge off the debt if your payments run late. The standard charge off is taken on accounts 180 days delinquent. Once a bankruptcy is discharged, lenders can pursue you for new (and late) debts by any and all legal means, including collection actions and civil lawsuits.
Founder/president of the innovative reference publisher The Archive LLC, Tom Streissguth has been a self-employed business owner, independent bookseller and freelance author in the school/library market. Holding a bachelor's degree from Yale, Streissguth has published more than 100 works of history, biography, current affairs and geography for young readers.