What Exactly is a Debt Write Off?

A debt write off is an expense a company takes when the no longer believe it is possible to recover any of the funds owned to them from a person or another company. Essentially what they are saying to the IRS is that the income they claimed prior isn’t real because the person is not going to pay. While some people believe they are getting a tax break for the unpaid sale and this isn’t the reality. All they are doing is taking a loss on the time and material put into whatever they sold.

If you are in a situation where you are unable to pay a debt you’ll be able to avoid a common misconception fed by settlement attorneys. Settlement attorneys will often try to tell you that they won’t accept a settlement because a deduction is worth more to them and they can still sue you. This is just a scare tactic. Whatever you do agree to settle on they can still take a deduction on the difference. The least a collector can get is nothing with a full write off and the most they can get is full recovery. Don’t let them fool you into thinking that there is anything in-between.

Working with settlement attorneys is difficult because they know you are in a desperate situation. The collector’s law firm will pressure you, and a defense attorney will convince you that everything will go your way to collect the up front fees. The only safe way through these situations is to understand the terminology and laws like debt write off so you can speak intelligently with all parties involved. Starting all conversations with background understanding and knowledge will prevent blatant abuses by those that are used to having the upper hand and keep the discussions to realistic outcomes.