As I see it, and my economics degree is long ago and far away, a bad debt is a loan that cannot be collected, and which may or may not have some physical collateral associated with it. For example, an uncollectable credit card balance could be a bad debt. A toxic asset is a physical entity, such as a house, that is worth significantly less than the debt it supposedly covers. It is an asset - it does have value - but it represents an immediate loss to the mortgage holder if sold.