How does a bank write down debt?

The charging or writing off of a debt is only a required accounting entry by the creditor. It does not effect you, or change the amount you owe, or that you owe it.

It does not change any of the legal methods to force collection that were available before making the entry.

All it does is make the creditors accounting statement recognize that an asset (your receivable) that it expected to realize, and already recorded as income, is not going to happen. they are taking the charge to their books for the expense of your not paying, or that it is now considered unlikely you will pay, and the asset does not exist (or in bank terms, is no longer productive).

It does not mean they won't pursue it...in most cases they must. If they get paid (anything or all on it), that amount is considered income and booked as a recovery to replace what they took as a a charge.

A bank, based on experience, will estimate what portion of its asserts (that are loans it has made), will not be paid. So, now in 2008, when more people are defaulting, most are saying they expect to receive less, and increase a "reserve" or "accrual" account they made for it. So for example, they may say they have $100 of loans outstanding...and they expect X income from it...but based on experience they say they anticpate 10% won't pay so the establish a reserve (a charge against that expected income) of 10% and show only $90 of a net asset. As you may expect, they do this very analytically, with diffwerent ratiOS for different types of laons....credit cards compared to car loans compared to home loans (and then different loans based on age or interest rates, or type of property, etc).