Write-off of bad debt on a loan from a bank or MFI

In today's world, more and more people are facing the problem of insolvency regarding their credit obligations. This can happen for various reasons such as financial difficulties, job loss, medical problems, etc. However, for many, debt becomes hopeless when they are no longer able to repay their debts. In such situations, the question arises about the possibility of writing off bad debt. In this article, we will consider the issue of writing off bad debt on a loan both in a bank and in a microfinance organization (MFI).

What is bad debt?

Bad debt is a credit debt that is considered unpaid due to long periodic late payments. That is, this is a situation when the debtor does not have the opportunity to fulfill his obligations to the creditor and repay his debt in full.

Impact of bad debt on the debtor

Failure to repay debts can have serious consequences for the debtor. The lack of ability to repay the money borrowed can lead to a deterioration of the credit history, which will negatively affect the ability to obtain future loans or loans. In addition, banks and MFIs can take actions to collect the debt, such as charging penalties, transferring the debt to collection agencies, or filing a lawsuit.

The possibility of writing off bad debt in the bank

The write-off procedure depends on the policy of a specific bank, as well as on the legislation of the country in which the bank operates. In some cases, the bank can independently decide to write off bad debts, especially if the debtor is bankrupt or has already gone through bankruptcy proceedings. However, in other cases, the debtor may need to apply to the court or other relevant authorities for a discharge decision.

The possibility of writing off bad debt in the MFI

The situation with write-off of bad debts in MFIs may be slightly different. Since MFIs often operate in a less formalized environment, the write-off procedure may be less complicated. In some cases, MFIs can independently decide to write off bad debt, because they understand the risks associated with non-reimbursement of the debt. However, there are also court procedures that MFIs can apply to obtain a write-off decision.

Write-off of debt on loans through the bankruptcy procedure

The first step in getting bad debt discharge through bankruptcy is to contact an attorney who can provide legal advice and assess your situation. They will help you understand whether you have grounds to file for bankruptcy and what steps you will need to take.

Filing for bankruptcy will start the legal process. The court will consider your application, check the actual financial inability and find out whether you have grounds for bad debt write-off.

You must be prepared to provide all necessary documentation and evidence to support your financial situation.
If the court recognizes your inability to repay the debt, then a decision may be made to write off the bad debt.

Thus, depending on the court's decision, your debt can be completely written off or restructured. To analyze your specific situation and calculate the cost of the write-off or restructuring of your debts in a bank or MFI microfinance organization (MFI), please fill out the form below.