Definition of charge-off

1. loan written off as uncollectible bad debt. When full repayment is considered unlikely, loans are removed from the lender's balance sheet and charged against the loan loss reserves account for bad debt. Loans removed from the lender's books may be partially or fully recovered by the lender's collection department or an outside debt collection agency if the loan is secured by collateral or the borrower has additional assets that are not secured by the debt. Closed bank accounts are also removed from bank records by charging them off. Also called write-off. See also bad debt; problem loan; workout agreement.
2. process of removing uncollected loans or closed accounts from a bank's balance sheet.

portion of principal and interest taken as a loss when a loan is deemed uncollectible.

Example: Ace Savings foreclosed on a mortgage loan but was able to recover only about 75% of outstanding principal and accrued interest from sale of the property. They took a charge-off on their books for the remaining loss.