What happens when a personal loan is charged off?

Timeline: Days 1-29 past due: grace period, no credit bureau reporting. Day 30: 30-day late payment reported to credit bureaus. Days 60, 90, 120, 150: each threshold adds a more severe delinquency notation. Day 180 (6 months): most lenders charge off the account. This is the standard charge-off timeline under banking regulations (OCC guidelines).

What charge-off means on your credit report: A charge-off notation (marked as 'CO' or 'Charge-Off' on your credit report) will appear and typically drops your credit score by 100-150 points at the time it occurs. It remains on your credit report for 7 years from the date of first delinquency (not the charge-off date). The impact lessens over time as the notation ages.

Debt buyer process: After charging off, the lender typically sells the debt portfolio to a debt buyer for pennies on the dollar (3-15 cents per dollar of face value). The debt buyer now owns the debt and has the same legal rights the original lender had - including suing you for the balance and obtaining a judgment. A judgment allows the debt buyer to garnish wages, levy bank accounts, or place liens on property in most states.

What you can do: Negotiate a settlement: Debt buyers purchase debt cheaply and often settle for 30%-60% of the balance. They still profit even at this discount. Get any settlement agreement in writing before paying. Dispute inaccuracies: If the charge-off date, amount, or account details are inaccurate, dispute with the credit bureaus. The creditor must verify or the item must be removed. Statute of limitations: Debt buyers can attempt to collect indefinitely, but their ability to sue you is limited by the statute of limitations on contract actions in your state (typically 3-6 years from the date of delinquency). After the statute expires, the debt is 'time-barred' and cannot be collected through a lawsuit.