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Richard, Tax Attorney
Category: Tax
Satisfied Customers: 53675
Experience:  29 years of experience as a tax, real estate, and business attorney.
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i have a client with a personal bad debt. it has been over

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i have a client with a personal bad debt. it has been over a year and he can't collect. how do i handle this, or do i. thanks
Welcome! My goal is to do my very best to understand your situation and to provide a full and complete answer for you.

Good afternoon. How much is your client owed? Thanks.
Customer: replied 3 years ago.


Thanks for your follow up. Since his friend will not pay the debt voluntarily, he should file suit. Since the debt is in excess of the small claims court limit in KY ($2500), he will need to file this is a civil district court. The suit will give him the leverage and collection options he needs. Once the suit is filed and a judgment awarded, you become a judgment creditor, and if the losing party doesn’t then pay the judgment, you can have the sheriff serve a summons on the losing party for a debtor examination. That forces the losing party to meet the judgment creditor in court and answer questions under oath about the losing party's assets. After that information is obtained, the judgment creditor has the power to garnish wages, attach bank accounts, and/or have the sheriff seize other property to satisfy the judgment.

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Customer: replied 3 years ago.

if he doesn't want to go the court route, which i dont think he does. can he take it as a capital loss on his tax return

Good morning. Did he loan money or did he perform services and did not get paid? Thanks.
Customer: replied 3 years ago.

my client allowed this person to get a cell phone in his name with the understanding that the person would pay the bills for the phone use. he did not and owes my client over $3000 in phone bills, so it is a capital loss? thanks

Yes, in order to deduct this as a loss, he needs to show it is a worthless debt. So, unless the client is a deadbeat and has no assets, he should file the suit to show it's worthless. Otherwise, the IRS could challenge whether or not the debt is truly worthless.
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