Credit card and other unsecured accounts are typically closed after you fall six months behind, according to the MSN Money website. The account is considered a write off for corporate tax purposes and listed on your credit report as charged off. You remain liable for the debt.
Significance
The charge off may cause your credit score to drop and will be listed on your credit report for seven years, according to the Federal Trade Commission.
Considerations
The credit company may place the debt with its in-house collections team -- also called internal recovery -- after the charge off, according to MSN Money. The representatives will contact you by mail or telephone to encourage you to pay. If you do not respond, the account could be sold or assigned to a debt collector or law firm.
Warning
Eventually a lawyer could file suit against you for the entire balance, resulting in possible garnishment of your bank account or wages. At that point, many people choose to settle instead of going to court. Debt settlement allows you to resolve a debt by paying less than the full balance -- typically 20 to 75 percent, according to Smart Money.
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