Is it too soon for debt to be written off?

[hnhlvr]

A letter arrived saying my DH's BOA account is 150 days past due and that it will be written off as "bad debt" at 180 days and his credit will be greatly impacted unless we pay up $285 now. So is that the end up it? It'll be written off and he'll probably just be harrassed by collection agencies?

If BOA checked his credit, they'll have found the mortgage in his name is months late (aka pre-foreclosure). Did they decide he is a lost cause and there's nothing they can get out of him?

[keepmine]

FDIC Reg 5000 requires revolving accounts {credit cards} to be chargedoff within 180 days of default.

[liz417]

FDIC Reg 5000 requires revolving accounts {credit cards} to be chargedoff within 180 days of default.

Hi Keepmine:

I have a silly question. When the cc "charge off" the debt, does that mean they get a full tax write-off? It seems like the special # here is 180 days, what exactly happens after that?

Thanks!

[keepmine]

Hi Keepmine:

I have a silly question. When the cc "charge off" the debt, does that mean they get a full tax write-off? It seems like the special # here is 180 days, what exactly happens after that?

Thanks!

Yep, they get the writeoff. But, they still own the account and can do with as they please. They can continue to try and collect on it themselves or, sell or assign it to a 3rd party collector.

[hnhlvr]

Yep, they get the writeoff. But, they still own the account and can do with as they please. They can continue to try and collect on it themselves or, sell or assign it to a 3rd party collector.

Do third-party collecters have the right to seek legal action or do they just call and threaten via phone calls?

[keepmine]

Do third-party collecters have the right to seek legal action or do they just call and threaten via phone calls?

If they own the debt, they can sue. If it's assigned, they need the permission of the creditor to sue.

[liz417]

Yep, they get the writeoff. But, they still own the account and can do with as they please. They can continue to try and collect on it themselves or, sell or assign it to a 3rd party collector.

But if they write it off after 180 days, then collect via collections dept, isn't that a "double-win" for them because they get "paid" twice??

[AngelinaCat]

Hi Liz:

From what I have read, they can do exactly that.

[fltoo]

No, if they get a payment it goes into their income statement and taxes are paid on it, regular business accounting.

[hnhlvr]

No, if they get a payment it goes into their income statement and taxes are paid on it, regular business accounting.

But even if they do pay taxes on the payment income, aren't they still coming out ahead after factoring the write off (and if so, how does this not surprise me!)?

[fltoo]

Of course not, you still owe them money (a loss) and they write that off.
Then, if you make a payment, they enter it as income.

Say you have a small business and you sell widgets. Someone comes in and really wants that widget but can't afford it so you tell them they can pay you on time.

Well, they default on their promise, so tax time you take it as a loss. Then you call and threaten them with lawyers and scare them into making a payment, lol. Well, the payment they made is now part of your income.

[fltoo]

Revenue:
Gross Sales $0.00
Less: Sales Returns and Allowances $0.00
Net Sales $0.00



Expenses:
Advertising $0.00
Amortization $0.00
Bad Debts $0.00
Bank Charges $0.00
Charitable Contributions $0.00
Commissions $0.00
Contract Labor $0.00


Here is a very small part of the income statement.
See the top where it says revenues. You enter all your income including any previous debt you collect.

Under expenses you will see "bad debt" sometimes referred to as uncollectable debt. Bad debt reduces your net income because you subtract your expenses from revenues. This reduction in income is known as a "write off."

Although this is a very simplistic explanation, I hope this helps with understanding write offs.