Bad Debt

Bad debt is the name used by the Internal Revenue Service for money that cannot be collected, either from a business or a personal venture. The intention must have previously been indicated that a loan, and not a gift, of money has been made and is not collectable for some reason. Business bad debts are created in the course of doing business. A non-business bad debt is also considered short-term capital loss and must be totally worthless.

From a business stand point, these are accounts receivable that will remain non-collectable and will eventually be written off. They appear as an expense on the company's income statement, thereby reducing net income. Most companies make some allowance for this type of situation, as it is unlikely all accounts will be paid in full. Bad debts that were generated over a course of time, such as a loan to a relative, are generally not deductible from a tax standpoint. There are ways to handle finances in order to keep from falling in the bad debt cycle so easy to fall into and so hard to get out of.

There are many things that can push a person into the position of being over-extended and owe money they can't afford. The loss of a job, illness, a death in the family, or medical bills can easily push you away from a financially solvent position. This is the time when it is most important to trust in God. It is easy to get caught up in everyday life and forget who is really in charge, but keeping Proverbs 16:3 close to heart will help anyone remember: Commit thy works unto the LORD, and thy thoughts shall be established. Also, re-reading the creation story to remember how powerful God is can help keep visual images close to mind.

Some options to eliminate bad financial situations are consolidation, consolidation loans, credit counseling, and bankruptcy. Bad debt consolidation means lumping all bills together and trying to pay them off with one monthly payment. A consolidation loan is may not be the way to go. Credit counselors can help develop a program of saving and repayment, and bankruptcy is discharging bad debts. Bad debts can be overcome by credit counseling that leads to better debt management and eventually a way of life that is virtually debt-free. Using the various options open, establish a system of finances that doesn't allow going into debt striving to get out by using credit counseling or another option.

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