A bad debt is a debt that cannot be recovered. Thus, there are two types of bad debt: business and nonbusiness.
A business bad debt is a loss from the worthlessness of a debt that was either created or acquired in a trade or business or closely related to a trade or business.
To claim this bad debt, do a specific charge-off or a nonaccrual-experience where an accrual basis taxpayer does not have to accrue income that is not expected to be collected.
A nonbusiness bad debt includes all bad debts that are not relating to trade or business, they must be totally worthless to be deducted, they should be deducted as short-term capital loss on Form 8949, and a loan to a relative or friend that is later forgiven is a gift and not deductible.