It’s November —and November means it’s time to get out the budget for next year.  One of the line items that should definitely be included in your budget is “bad debt.”  Bad debt is the amount of money you are not going to collect from your non paying owners.  For example:  let’s say that your assessments are $5,000 per year and that there are 6 owners who you know are not going to be paying their assessments.  Maybe two are in foreclosure, 2 are in bankruptcy and two already stopped paying the association.  6 x $5,000 = $30,000.00 in “bad debt.”

That $30,000.00 number should be listed as an expense in your budget;  Just the same as the landscaper or manager.  If you don’t put in a line item for “bad debt,” at the end of the year, your association is going to run $30,000.00 short and will have to pass a special assessment.

If the Board is having a problem determining how much the bad debt number should be, the association manager, attorney or accountant should certainly be able to help.

Just remember, as expenses go up and assessments go up, as they definitely will, you can rest assured your “bad debt” number will go up as well.