Simple example...I am the lender and a borrower owes me $100 (for simplicity, it's all principal). I write off the loan as uncollectible. I write it off against the allowance account (no issue there). I give it to a law firm to work. They manage to collect the $100 from the borrower, but give me $70 ($100 collected less a $30 fee). Would you record a $100 recovery and a $30 legal expense or would you record a $70 recovery and leave the expense going through the provision? If possible, please provide a reference to GAAP guidance. Thanks in advance.

Costs associated with collecting a written-off loan
Answers
It has been awhile since my banking days....so take this with some skeptism... (I know... it doesnt help).
You wrote it off. Done!
The "accounting" stops (stopped) there. If you give it to a recovery unit/lawyer, you are just doing a hail mary. Think about it, you already reduced your asset. From an accounting perspective, there is no entry when you gave the account to the lawyer. If you forget about it and the lawyer does not even give you the $70, you'd be okay (accounting wise). Everything from then on is (or should be) technically Other Income/Expense.
I don't understand what you mean by "leave the expense going through provision". Do you mean you are going to reverse your write off? If that is the case, then it is just a simple payment and lower "write off" amount....the $30. But I would not do that as it complicates/muddies the trail of transactions or the story of the account.
I would record the $100 as Other Income - Recoveries (or something like that) and the $30 as a separate but contra account....say Other Income - Recovery fees. This is a cleaner approach IMO.
If you recovered NET $70 after write off, I'd record it as:
Cash $70
Other Expense $30
Other Income $100
Or for simplicity sake
Cash $70
Other Income $70
To take Wayne's first breakout even further - was the loan written off during the current year or a prior year? if current year, I would use legal expense as the expense account. If it was written off as a prior year, I would use other expense in order to keep a clearer picture of current years' expenses.
Net the legal expense with the recovery, so the net recovery is $70. Restore $70 of your allowance (as opposed to $100) which will lower your future provision expense. Since you are lowering provision expense by $70 as opposed to $100, the legal cost is indirectly absorbed through the provision. Unless it is immaterial, you should avoid classifying the recovery as income since the write off original went through the allowance and provision, therefore the subsequent recovery should go back through the same line.