A debt can be delinquent, in default, charged off, and in collection at the same time. Read each label as an answer to a particular question. It rarely answers every question about what you owe.
Words that describe the obligation
- Debt
- An obligation, or alleged obligation, to pay. The legal definition depends on the rule being applied.
- Credit
- The right to postpone payment, or incur an obligation and pay later. Having available credit does not mean a payment is overdue. See Regulation Z's definition.
- Liability
- Legal responsibility for an obligation. Separate the person's responsibility from a creditor's rights against property.
- Arrears
- Amounts already due and unpaid. Ask whether the figure includes fees, interest, or only missed installments.
A label on a credit report is information about an account. It is not a substitute for the contract, payment history, or a court's determination of a disputed claim.
Words that describe account status
| Label | Meaning to investigate | What it does not establish |
|---|---|---|
| Delinquent | A required payment or performance is late under the applicable rule. | A universal default date or immediate lawsuit right. |
| Default | A contractual or statutory default event has occurred or is alleged. | That every product uses a 90-day clock. |
| Charge-off | The lender has recognized a loss for accounting purposes. | That the debt has been forgiven. |
| Collection | Someone is seeking payment. | That the claimed amount, owner, or legal remedy is correct. |
Default may involve a missed payment or a different contract breach. The Federal Reserve charge-off definitions distinguish accounting loss recognition from later recoveries. Charge-off does not itself tell you whether ownership changed. Ask separately who owns the claim and who is authorized to receive payment.
Words that describe a proposed resolution
- Settlement
- An agreement to resolve a claim on specified terms. Signing and completing the required performance are different events.
- Restructuring
- A change to payments, rates, timing, or other terms. Principal can remain fully payable.
- Forgiveness or cancellation
- Some repayment obligation is relinquished. The scope, effective date, and tax treatment still need checking.
- Discharge
- Relief under a particular legal system, often bankruptcy. A bankruptcy discharge generally protects against collection of discharged personal liability, while a valid lien may remain. See the U.S. Courts discharge explanation.
Find the document that proves the finish
Satisfaction describes fulfillment of an obligation or judgment. Release should name exactly what is being released: a claim, a person, a guaranty, or a lien. A receipt for a payment does not necessarily prove all of these.
For example, a lender agrees to accept $4,000 against a disputed $6,000 claim. The agreement should state what happens to the remaining claim after timely payment, whether every intended borrower is covered, and whether a separate lien release or court filing is required. That is a hypothetical document-reading exercise, not a predicted discount.
- Match the account and parties to the agreement.
- Identify the required performance and effective release date.
- Keep proof of payment and obtain any required satisfaction or lien document.
- Check credit reporting and possible canceled-debt tax consequences separately.
Sources and further reading
General educational information. The original evidence, dates and recorded qualifications are available in the optional archive below.