Legal Definitions - desperate debt

A desperate debt refers to an amount of money owed that is considered highly unlikely or practically impossible to collect. This classification is typically made when the debtor is insolvent (unable to pay their debts), has disappeared, or when the legal and administrative costs of pursuing the debt would exceed the amount owed, making collection economically unfeasible.

• Example 1: Business Bankruptcy

  A small software development firm, "CodeCraft Inc.," completed a project for a client, "Digital Horizons," billing them $75,000. Shortly after the invoice was sent, Digital Horizons declared bankruptcy, listing assets that were significantly less than its total outstanding debts to numerous creditors. CodeCraft Inc. was listed as one of these creditors.

  Explanation: CodeCraft Inc.'s $75,000 claim against Digital Horizons would be considered a desperate debt because Digital Horizons is legally insolvent. Even if CodeCraft Inc. participates in the bankruptcy proceedings, the likelihood of recovering a substantial portion, if any, of the $75,000 is extremely low due to the client's inability to pay its overall obligations.

• Example 2: Unlocatable Debtor

  Maria lent her former colleague, David, $1,500 to help him cover an unexpected medical bill, with an agreement for repayment in six months. After a few months, David abruptly resigned from his job, moved out of state without providing a forwarding address, and disconnected his phone number and email, making all attempts by Maria to contact him unsuccessful.

  Explanation: Maria's $1,500 loan to David has become a desperate debt. David's disappearance and lack of contact information make it practically impossible for Maria to locate him, serve him with legal papers, or enforce any repayment, even if she were to pursue a lawsuit.

• Example 3: Economically Unfeasible Collection

  A local veterinary clinic, "Paws & Claws," has an outstanding balance of $50 from a client for a routine check-up performed three years ago. The client moved to another country shortly after the service, and the clinic has no current contact information beyond an old email address that no longer works.

  Explanation: This $50 balance is a desperate debt for Paws & Claws. The amount owed is very small, and the client's current location is unknown and likely outside the clinic's jurisdiction. The time, effort, and potential legal costs involved in attempting to track down and collect from a client in another country would far exceed the $50 owed, making any collection effort economically impractical.