What is Bad Credit Loan Rates?

What is Bad Credit Loan Rates?

Bad debts represent an insurmountable obstacle for the recovery activity.

If you have bad credit, it means that you can no longer demand payment from your debtor.

The bad debt can depend on many factors: the prescription, the inability to act legally against the debtor (because for example he is untraceable or has no property), or the repeated non-fulfillment despite the numerous payment reminders.

If you are a creditor and you are faced with an irrecoverable credit, you must know that there is a tool that allows you to take advantage of this situation: the so-called tax exemption.

But what does it mean to tax credit?

It means that you can lighten the state’s tax burden by deducting the incidence of a tax from the amount of your prescribed or irrecoverable credit.

In practice, you can pay fewer taxes by demonstrating the impossibility of recovering your credit.

Before explaining what you need to do to get tax relief on bad debts, I must make you a very important premise.

Tax exemption: not for everyone …

You must know, in fact, that not all creditors can use the tax exemption tool.

Only companies or businesses that prepare annual accounts have the possibility of obtaining tax exemption 

If you are a business owner and have not been able to recover your credit, follow these 3 tips to pay less tax.

VERIFY IF THE DEBT OF THE DEBT IS TEMPORARY OR DEFINITIVEThe law provides for two different deductibility mechanisms depending on the seriousness of the breach.

But what is meant by deductibility?

Deductibility means a decrease in taxable income on which the amount of taxes to be paid is calculated.

  • If the bad debt is potential, flat-rate deductibility is envisaged: these are the cases in which the irrecoverability of the credit is only a temporary condition.
  • If, on the other hand, the collectibility is definitive, the total deductibility of the charges from the taxable income is envisaged: in these cases, it is certainly excluded that the creditor will be able to recover the credit.

Cases of bad debt

LOW- SIZE CREDITS: a credit is considered to be of modest amount when it amounts to an amount not exceeding 5,000 euros, for larger companies, and not more than 2,500 euros for other companies. Furthermore, these credits must have expired for at least 6 months.

DEBT SUBJECT TO COMPETITION PROCEDURES: when the debtor is in bankruptcy or trying to reach a debt restructuring agreement. It is possible to obtain tax exemption without waiting for the closure of the bankruptcy procedure.

CREDIT PRESCRIPTION: when the deadline provided by law for asserting one’s right has elapsed.

PROVEN STATUS OF INSOLVENCY: when the debtor is in a persistent situation of financial illiquidity (“multi-protested” debtor) or it has not been possible to proceed legally because he has no property.

DEBTOR UNRESTABILITY: when it was not possible to notify warnings or judicial documents due to the unavailability of the recipient.


To obtain tax exemption, you must demonstrate the definitive nature of the loss.

How to prove bad debts

Here is an example list of the documents you must keep to prove the finality of the loss:

  1. The documentation showing the concrete initiation of bankruptcy proceedings (for example the bankruptcy sentence, copy of the passive status);
  2. The registered letters with which reminders and payment orders have been sent;
  3. The registered letters “return to the sender” due to the unavailability of the recipient;
  4. The documentation that demonstrates the negative outcome of the recovery procedures (for example the negative declaration of the third employer or the documents showing that the debtor has no property);
  5. The documentation shows that the debtor has multiple protests;
  6. The death certificate of the debtor and the documentation certifying the absence of heirs;
  7. The declaration by the public authority certifies the debtor’s flight status.


You must have a lawyer (or even a debt collection company) release the declaration stating all the activities carried out unsuccessfully for credit recovery.

Documents demonstrating the definitive irrecoverability of the credit must be attached to the declaration.

In some cases, the declaration with which the lawyer advises you not to take any legal actions is also sufficient because they are too expensive or of uncertain outcome (for example when the debtor only owns a property already mortgaged by another creditor and your credit is rather small – in these cases, it is inadvisable to initiate a real estate foreclosure).

If, on the other hand, you have given an assignment to a credit recovery company, it is necessary that you obtain the final report that demonstrates that the intervention was unsuccessful.

By Master James

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