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Bad Debt Help Questions

Everyday just about anywhere business is being transacted; there is a transaction that may end up being a bad debt. No one goes into a business transaction thinking that their transaction will end in bad debt, if they did most transactions would not happen.

What is bad debt?

Bad debt is debt or amount that is owed, that has been written off as a loss, due to the debt being uncollectible. For the debt to be considered to be deemed uncollectible all efforts that are deemed reasonable must have been attempted. Bankruptcy is most often one reason for a debt becoming a bad debt. A debt may also be labeled a bad debt if the amount to be spent collecting the debt is in excess of the debt itself. Read below to find where more questions have been answered by the Experts pertaining bad debt.

What is the difference between allowance method and the direct write-off method when dealing with bad debt?

The allowance method is where at the end of each account period an adjustment is made in estimation of bad debt on the basis of the activity from the business. Companies that have been around for a while often use their past experience as a guide to estimate how much unrealized bad debt will be. The direct write-off method only recognizes a bad debt one the debt has been not paid for certain. Which means that before an account is labeled bad debt and uncollectible, the company has tried several times to get a collection from the customer.

Can an individual report bad debt to the credit bureaus?

In most situations, an individual is not able to report bad debts to the credit bureaus. Likewise not all companies are able to report to the credit bureaus either. The companies that are able to report to the credit bureaus have been made to meet the legal requirements and are also paying clients. The criteria the clients of the credit bureaus must meet are the legal criteria to gain access to individual consumers’ credit file and input data. Individuals would not be able to qualify or meet the legal requirements, so even if the individual was willing to pay the fees they would still not be able to report bad debts to the credit bureaus.

If the phrase “charged off as a bad debt” shows up on an individual’s credit report does it mean collection calls will stop?

The phrase “charged off as bad debt” on a credit report means that the company has written the debt the individual had with them off as a bad debt, which means they do expect to be able to receive and funds from the individual to pay towards it. It does not mean that collection calls will stop, because the charging off may have been done at the same time it was handed over to collections.

Bad debt is debt where companies have not been able to collect and is often times deemed uncollectible. Bad debt is also reported to the credit bureaus, if the bad debt is with a company that has met the legal requirements and is a paying client of the credit bureaus. Individuals are not able to report bad debt to credit bureaus as they are unable to meet the legal requirements. Any questions regarding bad debt can be directed to the Experts.
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