bad debt

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Debt whose repayment is known to be impossible or unlikely. Failure of the borrower to make payments of principal or interest on the due dates is evidence that a debt should be suspect, but a debt can become bad even before the payments are actually due if the debtor is known or believed to be insolvent. If payments are delayed, creditors who think that ultimate payment is likely may be willing to formally reschedule debts, or merely to wait for payment without any formal agreement. At what stage bad debts should be ‘written off’, that is, the creditors should cease to record them as assets in their accounts, is a matter of judgement. Institutions with numerous debts owing to them may make provision for losses without specifying which particular debts they regard as being uncollectable.

Subjects: Economics.

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