When people borrow money but are unable to pay back their lender, they are said to have a substandard loan. Borrowers who default on their loan or can’t make monthly payments have “bad debt” and can pose a big problem to their lenders. In bad debt scenarios, lenders lose money and their investment and often find themselves needing to take legal steps for financial relief. Additionally, borrowers must find a way to get their unpaid debts discharged.
Bad Debt and Legal Issues
Bad debt often creates complex legal issues between borrowers and lenders. As a lender, it is extremely important to have a well-defined loan agreement to have as a tool in legal proceedings. Some of the legal issues caused by bad debt include bankruptcy and tax deductions.
Bankruptcy
Often borrowers who have bad debt will file for bankruptcy in hopes of getting released from their debts. Many forms of debts are released from filing a bankruptcy claim; however, there are some forms of debt that are non-dischargeable.
Filing Taxes
Often being in a bad debt situation can affect how lenders need to file their taxes. Lenders who are out on their investments often like to use these situations to get a tax deduction; however, due to the complex nature of bad debt scenarios, it is important to be careful when filing for tax deductions as they can sometimes cause setbacks.
Legal Assistance
Bad debt can be an extremely complex situation to navigate. If you are in a bad debt situation, it can be helpful to work with a lawyer to file your claim or assist with other legal steps. Lawyers offer a great resource for obtaining financial relief and making sure you are going through the process correctly.
When loan agreements are not met, lenders and burrowers are placed into a complex situation. Seeking professional guidance is a great way to navigate bad debt legal proceedings.