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Can a Creditor Write Off a Debt Then Still Accept Payments

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  • 11-06-2016, 12:31 PM
    lawfacts
    Can a Creditor Write Off a Debt Then Still Accept Payments
    If a credit report shows an account as closed, can the creditor still collect payments? The borrower declared bankruptcy and got a discharge of a car loan, but has kept making payments on a car to keep it from being repossessed. The creditor is accepting the payments.
  • 11-06-2016, 01:04 PM
    Mr. Knowitall
    Re: Can a Creditor Write Off a Debt Then Still Accept Payments
    The first question is whether the account was simply closed, as in no longer being actively collected, or whether it was also written off. If it was simply placed on inactive status due to the bankruptcy and discharge, that's not a write-off.

    But assuming that the debt was written off, the bank doesn't have to forego accepting the money. The write-off gets the creditor a tax deduction for an uncollectable debt. If they later collect part or all of the debt, it's an issue for the accountants to address when filing the company's next tax return.

    Given that this was a bankruptcy, odds are that the debtor did not have any taxable income as a result of any write-off that occurred. If a debtor does have to pay taxes on a written-off debt and later pays the debt, that's something that the debtor would want to address with their tax preparer.
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