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Mangement and Settlement >>
Bad Debt Bad Debt are considered
to be those debts that are unlikely to be repaid. There are two types
of Bad Debt (in terms of asking for deductions in the tax returns):
- A business bad debt
- Non
- business bad debt
A business bad debt comes from a trade
or a business. It can be deductible only when it is included in the business income.
All other Bad Debt are non business. For example it can be a personal loan
made to someone. Non business Bad Debt are worthless to be deductible unless reasonable
steps have been taken to collect the debt, like going to the court and sending
demand letters. A debt can only become worthless when there is no further chance
of the amount to be paid back. A debtor who has declared bankruptcy proves a loan
to be worthless. Some examples of bad debt
- Debt accumulated on items which do not increase in value over time.
- The interest is charged over time in the debt that increases the cost
of the product two to three times the original value.
- Debts
which charge compound interest are examples of bad debt.
- Bad
Debt decrease the value of goods and services over a period of time.
Some examples of good debts - Debts which
are gathered on goods and services that increase in value over a period of time
are examples of good debt.
- Debts which charge simple interest
and not compound interest are examples of good debt.
- Some
examples of good debt are home loans and school loans.
- If
it is not difficult for the employer to acquire the payments which are bearable,
they are good debts because most homes increase in value over a period of time.
- School loans are good debts because they help is acquiring
a job. The income increases simple interest being charged.
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Mangement and Settlement |