Yes, we believe a borrower’s total outstanding liabilities to a bank include a debt that has been charged off if it remains enforceable by the bank.

Under the Illinois Banking Act, the total outstanding liabilities of any one person at one time to a state bank must not exceed 25% of the bank’s unimpaired capital and unimpaired surplus (and in certain circumstances this percentage can be increased to 50%). A charged off debt remains an outstanding liability for a borrower unless it has become legally unenforceable. A debt may become legally unenforceable due to a bankruptcy discharge, an expiration of the statute of limitations, or by a written agreement between the parties to forgive the debt.

Thus, until the charged off debt can no longer be enforced against the borrower, it remains an outstanding liability and should be part of your lending limit calculations.

For resources related to our guidance, please see:

• Illinois Banking Act, 205 ILCS 5/32 (“The liabilities outstanding at one time to a state bank of a person for money borrowed, including the liabilities of a partnership or joint venture in the liabilities of the several members thereof, shall not exceed 25% of the amount of the unimpaired capital and unimpaired surplus of the bank. . . .”)

• Illinois Banking Act, 205 ILCS 5/32 (“. . . . The total liabilities of any one person, for money borrowed, or otherwise, shall not exceed 25% of the deposits of the bank, and those total liabilities shall at no time exceed 50% of the amount of the unimpaired capital and unimpaired surplus of the bank.”)

• IDFPR Interpretive Letter 91-34 (December 12, 1991) (“This definition of ‘money borrowed’ focuses upon liabilities for money advanced to the borrower that are intentional advances . . . .”)

• In re Allen’s Estate, 327 Ill.App. 270, 273 (1st Dist. 1945) (“In ordinary business practice, when a customer does not pay his bill and there appears to be no means of collecting it, it is entered as a bad debt. Such accounting procedure is simply a method of evaluating an asset and does not in the slightest manner affect the force or validity of the obligation. If later the debt becomes collectible, there is nothing to prevent its enforcement.”)

• U.S. Bankruptcy Code, 11 USC 524(a)(2) (“A discharge in a case under this title. . . . operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived.”)