A loan is considered “charged-off” after a borrower misses 5 consecutive monthly payments. At that point, the loan is considered unlikely to be repaid.
When a loan is charged-off:
- The entire loan balance is due immediately—including all unpaid fees, interest, and principal. In other words, the full remaining amount of the loan is collectable as opposed to just the unpaid monthly payments.
- No additional interest or fees will accrue on the charge-off balance.
Charge-offs remain in collections until some action is taken to end the loan.
Possible loan-ending activities include payment in full, discharged bankruptcy, and sale to a debt buyer. We can also end a loan with 'no value', meaning all efforts to collect on the loan, including debt sale, have been exhausted and the loan is deemed to have no value.
Payments made by the borrower following a charge-off are considered “recoveries.” These funds pay down the loan’s balance, but the loan remains in a charged-off status. Depending on whether the loan is in Prosper collections or with a third-party charge-off collection agency, recoveries may be subject to collection fees. Once charged-off, the account will be reported as “Charged Off” until paid in full.