Legal Definitions - capital recovery

Capital recovery refers to the process where a business or organization successfully collects a debt that it had previously deemed uncollectible and formally removed from its financial records as a loss.

Essentially, it's the act of getting back money that was once considered lost and written off as a bad debt on the company's books.

• Example 1: Bank Loan Repayment

  A regional bank had a customer who defaulted on a $10,000 personal loan five years ago. After extensive but unsuccessful collection efforts, the bank formally "wrote off" this loan, meaning it recognized it as a loss on its financial statements and removed it from its active assets. Recently, the customer won a significant lottery prize and, wanting to clear their financial slate, contacted the bank to repay the full $10,000, plus some agreed-upon interest.

  Explanation: This repayment is a capital recovery because the bank is collecting a debt it had previously written off as uncollectible, thereby recovering capital it had considered lost.

• Example 2: Business-to-Business Invoice Collection

  "Tech Solutions Inc.," a software development firm, had an outstanding invoice of $15,000 from a client, "Innovate Corp.," for services rendered. Innovate Corp. faced severe financial difficulties and eventually ceased operations, leading Tech Solutions Inc. to write off the $15,000 as a bad debt on its books. Two years later, Innovate Corp.'s assets were liquidated, and the liquidator managed to distribute a small percentage of the outstanding debts to creditors. Tech Solutions Inc. received a check for $3,000 as a partial payment for the previously written-off invoice.

  Explanation: The $3,000 received by Tech Solutions Inc. is a capital recovery because it represents a collection on a debt that the company had already recognized as a loss and removed from its active accounts.

• Example 3: Healthcare Bill Recovery

  A hospital provided emergency services to a patient who did not have insurance and was unable to pay the $7,000 bill. After several months of billing attempts and no payment, the hospital's accounting department "charged off" the debt, classifying it as uncollectible and adjusting its financial records accordingly. A year later, the patient secured a new job with good benefits and, feeling a moral obligation, contacted the hospital to set up a payment plan, eventually paying off the entire $7,000 balance.

  Explanation: This payment constitutes capital recovery for the hospital because it is successfully collecting a debt that it had previously written off as a loss, thereby recovering funds that were no longer expected.