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When a debt settlement arrangement is made does the bank write off the debt at the time of the agreement?
Wiki User
∙ 15y ago
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Banks, like most all Cos, have an accounting process where they essentially record bad debt write offs before they occur. Based on historical experience, when they make a loan they actually establish (more correctly change the one they have), to establish a reserve for the anticipated bad debts. So, if a company sells $100 of something...it records that as sales revenue, and base on experience (say 10% bad) records a$10 to a reserve account...netting $90 of recorded income for the sale. the loss on any particular account is taken against this reserve, which is adjusted as experience and financial conditions dictate. (So as I write this in 2008, with many companies experienceing increased defaults on payments, they may say lets increase our reserve to reflect instead of 10% of sales, 12% of all collectibles/sales). A further answer They clear the debt from your name and your credit report. They would mention Cleared in partial in your credit report.
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∙ 15y ago
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