A charge-off is the accounting action by which a lender removes all or part of a loan balance from its books and records the amount as a loss against the allowance for credit losses. It is a bookkeeping recognition that collection in full is unlikely — it does not forgive the debt, release the collateral, or end collection: the lender retains its full legal claim against the borrower and any guarantors. Amounts later collected on charged-off loans are recorded as recoveries and credited back to the allowance.
The loss is economically recognized at charge-off, which changes the calculus on the remaining exposure: any subsequent recovery — through collection, foreclosure, or a note sale — is measured against a written-down basis. That is one reason partially charged-off notes frequently come to market; see how buyers price a CRE loan.
Why credits like this reach a workout desk: bank noncurrent commercial real-estate loans have risen while reserve coverage slips at community banks (FDIC Quarterly Banking Profile), and roughly $957 billion of commercial and multifamily mortgage debt was scheduled to mature in 2025 — against a total market of about $4.8–5.0 trillion, ~38% of it held by banks and thrifts (Mortgage Bankers Association). See the CRE distress statistics hub for the full figures and sources.
Primary sources: FDIC Quarterly Banking Profile, Mortgage Bankers Association, and interagency (FDIC / OCC / Federal Reserve) guidance on CRE loan accommodations and workouts. Figures are directional and updated periodically; confirm the latest release before relying on a specific number.
On a collateral-dependent loan, the lender writes the balance down to the fair value of the collateral less estimated costs to sell, charging off only the shortfall. The remaining book balance stays on the balance sheet, usually on non-accrual.
Unlike consumer credit, commercial loans have no fixed day-count rule. A charge-off is taken when the loan, or a portion of it, is classified loss — deemed uncollectible — based on the lender's analysis, typically when a collateral shortfall is confirmed or at examination.
Yes — the note and its lien survive the accounting entry, and a sale converts an uncertain future recovery into immediate cash; Standing Bid Capital purchases charged-off and partially charged-off commercial notes — Request a confidential review.