Bad debt refers to any amount owed to you that you will never be able to collect. A late payment or refusal to pay does not necessarily lead to a bad debt. The debt must become uncollectible in the foreseeable future as well—this can mean a bankrupt debtor, a customer you've unsuccessfully tried to sue, or a company in such bad financial shape that it has no assets for a court to seize. Bad debts come in business and nonbusiness varieties. Nonbusiness bad debts only qualify for capital loss treatment—meaning they can only offset capital gains and up to $3,000 of ordinary income per year. You can carry forward nonbusiness bad debts if you can't use them in the current year. Also, only completely worthless nonbusiness bad debts qualify for a deduction—partially worthless debts don't count. Business bad debts offset ordinary income. A debt created or acquired in a trade or business—or with a business-related primary purpose—counts as a business bad debt. Examples include credit sales to customers, loans to suppliers and employees, and business loan guarantees. Bad debts of a C corporation automatically qualify as business bad debt.