What is a Charge Off?

When a consumer becomes severely delinquent on a debt, a "charge-off" happens. It occurs when a creditor declares that an amount of debt is almost impossible to be collected. The creditor is most commonly a credit card account. After six months of nonpayment, the creditor normally makes the declaration.
The reason why this declaration is made is for the bank to be exempted for the taxes on the unpaid debt. These bad debts and even fraud are parts of the cost of doing business. However, the charge-off won't free the debtor for the amount of money that he owes.
Once a charge-off has been declared on a certain account, it will then be listed on the credit report. If the consumer needs a credit check for any intents and purposes, the charge-off record will be visible, thus, affecting the credit score. All relevant information pertaining to the said record will be made available for the company who runs the credit check.
Legally, the debtor still needs to pay the money although the bank already noted it as "written off as collection". The method of collection will depend on the creditor. Some companies forward these charged-off accounts to collection agencies to continue with the legal actions.