When we loan someone money we obviously expect to get the money back plus interest, but things don’t always go the way we plan. So when we realize that the person or company that owes us money isn’t likely to pay as agreed we need to know how to handle the situation. This article will tell you what to expect in that situation and the advantages you should be aware of and use.
The common sense financial advice is to write off the debt in this situation. It’s never fun to face that our investment didn’t go as we hoped, but when we do face the facts of the situation we are better able to get the most of it. There are advantages to writing off debt as well as rules to regulate the process.
The debt write off regulations are made to ensure both parties are treated fairly when creditor realize he most likely isn’t going to receive the money owed to him by debtor. When he decides to write off the debt the amount lost becomes tax deductable.
Debtor’s credit score is negatively affected as the write off is noted on his credit report and will stay there for seven years. And the debt remains active meaning that creditor can keep trying to collect the debt even after it has been removed from debtor’s credit report.
When we finally realize a loan is lost and decide to write off the debt there are some things that will make the situation better. The fact that the lost investment is tax deductable and that you can keep trying to collect the debt in full is a good start. And knowing debtor will have much harder time getting a loan in the future might also make the situation more bearable even though it doesn’t pay the bills.