So What Really is a Debt “Write-Off”?

There seems to a lot of confusion about charge offs and write offs. The terms seem to used interchangeably in some circles. Part of the reason for this has to do with the fact that they are basically terms of art used by accounts to classify bad debts. Does this mean much to a debtor who owes money to a credit card company? Not so much.

As discussed in a previous post, seeing a charge off or write off on your credit report may lead you to believe that the debt no longer exists or will not be collected.  But this is not the case. Both involve the reclassification of debts from accounts receivable to a potential loss. But creditors may still attempt to collect or sell the debt to agencies for them to collect. However, write offs typically involve a reduction in value of the account or asset.

For example, if you own your own business, then you may be allowed to write off your business expenses against what you earned for the year. If you have a business inventory of products for sale, then you may be allowed to write off losses for damaged goods, fire, theft, etc….

As I mentioned at the outset, these are primarily accounting terms that may not have importance to a consumer or debtor. The fact that what you owe has been charged off or written off does not guarantee that any debt has gone away for good. However, a good sign sign that you have had a write off that reduced or eliminated what you owe depends on whether you have received a 1099-C from the creditor. Depending on how much was written off, creditors are required to report large write offs to the IRS which triggers the requirement to file a 1099-C. Unfortunately, a 1099-C may also trigger a tax liability for the debtor.

To sum up, a charge off and write off is basically an accounting procedure to reclassify what you owe. But a write off may include a reduction or elimination of the value of the debt. So if  you do receive a write off, it is important to know if it involves a reduction or elimination, and whether a 1099-C has been issued.

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