Question: What is a "Bad Debt"?

The definition of a 'bad debt' is a debt that will likely remain uncollected, and as such will be 'written off' by the creditor that extended the credit. The term itself is used in accounts receivable departments at most business, and is a legitimate expense for a companies income and tax purposes.

Most business use what is called accrual-basis accounting, which means they must count income at the time of each sale, not when the payment is actually received. Because not every bill that goes out is actually paid (or paid in full), the difference in 'income' claimed by a business and the actual amount of that income that will be collected is written off as 'bad debt'.

While that may not be the formal terminology for it; a debt that is still collectable could be considered a 'good debt' to most companies, whether you agree with the prefix when you're paying the bills for it each month or not :)