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Charge-Offs and Judgements

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Ok this is what i have found out:

[§ 5739.12.1] § 5739.121 Bad debt deduction.

Text of Statute

As used in this section, "bad debt" means any debt that has become worthless or uncollectible in the time period between a vendor's preceding return and the present return, have been uncollected for at least six months, and that may be claimed as a deduction pursuant to the "Internal Revenue Code of 1954," 68A Stat. 50, 26 U.S.C. 166, as amended, and regulations adopted pursuant thereto, or that could be claimed as such a deduction if the vendor kept accounts on an accrual basis. "Bad debt" does not include any interest or sales tax on the purchase price, uncollectible amounts on property that remains in the possession of the vendor until the full purchase price is paid, expenses incurred in attempting to collect any account receivable or for any portion of the debt recovered, any accounts receivable that have been sold to a third party for collection, and repossessed property.

In computing taxable receipts for purposes of this chapter, a vendor may deduct the amount of bad debts, as defined in this section. The amount deducted must be charged off as uncollectible on the books of the vendor. A deduction may be claimed only with respect to bad debts on which the taxes pursuant to sections 5739.10 and 5739.12 of the Revised Code were paid in a preceding tax period. If the vendor's business consists of taxable and nontaxable transactions, the deduction shall equal the full amount of the debt if the debt is documented as a taxable transaction in the vendor's records. If no such documentation is available, the maximum deduction on any bad debt shall equal the amount of the bad debt multiplied by the quotient obtained by dividing the sales taxed pursuant to this chapter during the preceding calendar year by all sales during the preceding calendar year, whether taxed or not. IF A CONSUMER OR OTHER PERSON PAYS ALL OR PART OF A BAD DEBT WITH RESPECT TO WHICH A VENDER CLAIMED A DEDUCTION UNDER THIS SECTION, THE VENDER SHALL BE LIABLE FOR THE AMOUNT OF TAXES DEDUCTED IN CONNECTION WITH THAT PORTION OF THE DEBT FOR WHICH PAYMENT IS RECEIVED AND SHALL REMIT SUCH TAXES IN THE VENDER'S NEXT PAYMENT TO THE TAX COMMISSIONER.

Any claim for a bad debt deduction under this section shall be supported by such evidence as the tax commissioner by rule requires. The commissioner shall review any change in the rate of taxation applicable to any taxable sales by a vendor claiming a deduction pursuant to this section and adopt rules for altering the deduction in the event of such a change in order to ensure that the deduction on any bad debt does not result in the vendor claiming the deduction recovering any more or less than the taxes imposed on the sale that constitutes the bad debt.

HISTORY: 138 v S 16 (Eff 10-29-79); 149 v H 94. Eff 1-1-2002.

Not to exciting, but this would kinda suggest that the OC would not really want to sue you after the tax break unless the OC was unable to sell the debt to a CA. The OC would have to put it right back on their books if you paid it.

I did call the FTC, they didn't know and told me to call my State Attorney General, they didn't know either, but told me to call the Consumer Protection agency, they didn't know either. So I started calling a few lawyers, two said "yes they can", two didn't know, and two didn't give free consultations. I guess I'll have to keep searching.

[Edit by dave38 on Tuesday, September 24, 2002 @ 02:55 PM]

[Edit by dave38 on Tuesday, September 24, 2002 @ 02:58 PM]

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  • 3 weeks later...

Here's how it works with a bank. An account, (loan) can only be carried on a bank's balance sheet as a performing asset up to 120 days past due. At that point it becomes a non-performing asset and must be accounted for as such. That is when it will be declared a "charge off".

In the case of a secured loan the collateral will have been repossessed and sold. An attempt will be made to collect any deficiency and if unsuccessful, it will be charged off.

A charge off does not release you from the debt. It is an accounting entry required by the regulators. The bank will write off the balance against their earnings and reduce their taxable liability. They can sell your debt for pennies on the dollar and that sale will be accounted for as income. The net-net loss, the difference between the charge off amount and any amount realized on a sale of your debt, is the amount they can write off.

A credit card charge off may have hundreds of dollars worth of fees included in the balance. Money that never existed but that was merely assessed to the account. This write off will increase the "loss" for the bank and reduce potential tax liabilities for them, even though the money, in effect, never existed. Worse, you may get a tax statement from the bank/lender showing the write off as "income" to you.

Further, if the debt is sold to a third party they will attempt to collect all or part of the debt. They likely bought the non-performing loan for pennies on the dollar so anything they can recover is profit to them. They will have many legal avenues open to them to collect. Your only way out is negotiating a settlement, bankruptcy discharge, or statue of limitations.

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Anyone had any luck getting a judgement vacated due to the fact a family member was served your paperwork, not you personaly,my mother signed for a certified letter for the judgement at her place of residence.I wasn't living with my parents then. The judgement has been paid but i'd like to get it off my CR

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