In this article, you can discover:
- Tax regulations surrounding debt relief
- Tips for when Bankruptcy may be appropriate
- The timeline for debt settlement negotiation
Will You Have To Pay Taxes On Debt Relief?
Whether or not you will have to pay taxes on the debt relief you have been granted may depend on your specific situation. If you’re curious about your tax liability, it’s a good idea to consult with your tax advisor to get more information. Creditors may send you a tax form at the end of the year called a “cancellation of debt tax form 1099-C”. This form is required by the Internal Revenue Service (IRS).
The cancellation or forgiveness of $600 or more in debt may result in a tax consequence for the debtor, meaning the amount of the canceled debt could become taxable income. For example, if a debtor owed a creditor $1,000 and settled for $600, the debtor might receive a 1099 C form for $400.
How Is Debt Settlement Different From Bankruptcy?
Debt settlement is an agreement between you and your creditor to repay your debts. This is different from bankruptcy, which requires you to list all of your debts and assets and obtain a discharge from all of your debts through a bankruptcy court. With bankruptcy, you must also provide tax returns, pay stubs, a budget, and other documents to obtain a discharge.
Why Might Debt Relief Be A Better Option Than Bankruptcy?
Deciding whether debt settlement or bankruptcy may be a good option for you depends on your situation. To decide which route is best for you, it’s always best to consult with your attorney.
Some people want to avoid filing for bankruptcy, especially when they only have one or two debts they wish to settle. In this case, debt settlement may be a more viable option. Additionally, anyone owing less than $10,000 may be better off choosing settlement over bankruptcy.
Many clients feel they can recover their credit and credit score faster after debt settlement rather than filing for bankruptcy.
Is It Better To Settle A Debt Or Let It Fall Off?
When it comes to debt, we each have our own personal choice to settle it or let it fall off. Once a debt is charged off by the creditor, this doesn’t mean that the amount owed is no longer due. Instead, it means that the debt has been removed from the creditor’s balance sheet and can be sold to another party – often called a debt buyer.
It’s essential to try and settle your debt before it’s charged off and sold to another creditor, as they may be less flexible in terms of the settlement. In most cases, the original creditor is more willing to negotiate a settlement on better terms.
How Long Does It Take To Negotiate A Debt Settlement?
Negotiating a debt settlement can take two to several months, depending on the creditor and the case’s complexity. Some cases are simply more complicated, which can lengthen the process to three or four months.
Another factor that can affect the timeline is whether opposing counsel needs their client to review the settlement documents or terms; this review period can delay settlement approval from the creditor.
Will I Include Unsecured Debts When Negotiating Debt Settlement?
When working out a settlement with a creditor through your debt settlement attorney, there is no need to include all unsecured debts. Your attorney can help identify which debts are most important to focus on and work out an agreeable resolution. For example, it may be in your best interest to settle the more significant debts first and then work down the list to smaller balances.
Should I Keep Paying My Credit Card Bills While My Attorney is Settling My Debts?
You should not keep paying your credit card bills while negotiating a debt settlement with your attorney. Doing so will hamper your ability to reach a settlement agreement. Instead, set aside the funds you would have used to make these payments to pay off the total amount owed in one lump sum.
How Do I Choose The Right Firm To Handle My Debt Settlement?
When searching for a debt settlement attorney, it is essential to find a lawyer specializing in this area of law. The ideal attorney should be familiar with the tactics of opposing counsel and be able to negotiate effectively with creditors. Choosing an attorney with a proven track record of successful settlements is also beneficial.
Can Debt Settlement Stop Foreclosure?
Debt settlement cannot always stop foreclosure because creditors with a lien on your home can choose not to negotiate the amount of their debts. They have the collateral (your home) and can foreclose on it to recoup their losses.
Can I Settle My Debt If I Am Current?
Debt settlement is not usually an option for people who are current on their payments. Creditors are often unwilling to negotiate unless the borrower is at least three months behind.
For more information on Bankruptcy Vs. Debt Settlement In Maryland, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (240) 539-9393 today.