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An uncollectible debt. the problem is to determine when a debt is realistically dead, which means there must be some evidence of uncollectibility or a lengthy passage of time. discharge in bankruptcy, the running of the statute of limitations to bring a lawsuit, disappearance of the debtor, a pattern of avoiding debts or the destruction of the collateral security can all make a debt “bad.” for income tax deduction purposes such a debt in business is deductible against ordinary income (found in federal income tax form 1040 schedule c) and such a personal debt is deductible against short-term capital gains. a debt due for services rendered is not a bad debt for tax purposes, since there is just no income on which to be taxed.
