This part is an error: "I did receive payment and had it deposited to the Bad Debts account. Showed up fine. However, doing a credit memo in this manner is not keeping them in that account."

There is no Payment to process, and it doesn't get "deposited" anywhere. That is Banking, but for a write off, there is no Banking going to happen. That's the problem, right? No Money from them.

The Credit Memo is an AR entry, which will make it available to apply to the invoice, which is creating the unpaid AR balance you intend to write off. You use a Charge item that links to an income account for Write off, because you want it to show it offsets the income that was on the Invoice. And you use it on the credit memo to result in Value, for the AR credit.