If you find yourself in a bind when it comes to credit card debt, you may find that you’re going to look at many options. From haggling with the credit card companies to declaring bankruptcy. While there are a lot of options, I can understand why it can be hard to choose one.
When it comes down to debt, there is so much information to absorb and while many of you may not have the time to sit back and learn it, you may have no choice but to head to a professional and that’s okay!
Whether a professional or yourself has learned a little bit about credit card debt forgiveness, I wanted to give you 4 things that you should know about it, before you think about attempting it.
You’re going to be taxed on it
When you settle with a credit card company by going this route, you’re going to find that the creditors are going to send you a 1099-C form. Whatever debt that was canceled will be taxed. For example, if you had $7,500 in debt and they settled on $4,000, you’re going to have a $3,500 difference. That difference will be taxed.
You don’t pay taxes when declaring bankruptcy
If you decide that you want to declare bankruptcy, you’re not going to have to pay the bills off anyways. Many people have the assumption that they will have to pay taxes on all unsettled debts. This isn’t the case. You will be excluded from the tax rule. I would advise that you meet with a professional accountant if you ever have questions.
It will lower your credit score
If you decide that you want to settle for something less, the credit card companies will report this to your credit report. It’s going to show that you have no more debt with that card, but it will also state that you settled for a lower amount.
Get everything in writing
While it is tempting to get yourself to pay a lower bill to settle, you will always want to make sure that you get everything in writing. When you get things in writing, you’re going to find that you will have proof, if anything does happen down the road.
The most common error that you’re going to come across is the taxes at the end of the year. Just make sure that you understand that you’re going to get taxed on the difference of what you settle for. If you ever do have questions, be sure to refer to an accountant and/or lawyer that works with debt and bankruptcy.
