A charge-off is basically a company's way of writing off a bad debt. They will usually get a tax break on their charge-off accounts, so a lot of them charge-off accounts at the end of the year, or at the end of their fiscal year. There are a few ways that companies handle this type of account. They can just let it sit there and continue to report it to the credit bureau, without actively pursuing you to collect it. Then, when you go to buy something, borrow money, or have a credit check for any reason, it shows up on your credit as a bad debt. They can also file for a judgment against you, which is a long process and usually requires some arbitration on their part. If the judgment is granted at a Court hearing, it is recorded in the Court's office and if you ever sell your home or come in to any money in other ways, that debt will be paid out of whatever money you are to receive. Another thing that they can do is to sell the debt to a collection agency for pennies on the dollar. In their opinion, it's better to get a little money for it than none at all. Then, it's off their books and it's somebody else's problem. When you start to get calls from a collection agency, it's because the original creditor has sold your account. Collection agencies can be very aggressive, but there are laws to govern them. If you ever receive a threat or any other abuse from a collection agency, report them immediately to the proper authorities. A charge-off will typically stay on your credit report for 7 years, but can be renewed for a second 7-year term, if the creditor chooses to do so.
Hope this helps...Janna