A borrower loan is charged-off when it reaches 121 days past due. This means the borrower has missed the last five monthly payments. When a borrower loan is charged-off:
- The borrower’s entire loan balance is accelerated, meaning it is collectible in full as of the charge-off date.
- From the borrower’s perspective, interest continues to accrue on the principal balance just as it did before the charge-off. There are no changes to the interest rate or the way interest is accrued. Late fees are no longer charged.
- From the investor’s perspective, the loan’s principal balance is labeled the 'charge-off balance.'
Charge-offs will 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. Prosper 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 post-charge-off are considered 'recoveries', and pay down the loan’s balance, but the loan stays charged-off. Depending on whether the loan is in collections with Prosper or an outside charge-off collection agency, recoveries may be subject to collection fees. Once charged-off, the borrower no longer has the opportunity to bring the loan current, only to pay it in full.