Considering Debt Settlement? Understand the Tax Consequences

by DeLadurantey Law Office, LLC on October 3, 2014

Money MazeMany people consider debt settlement as an option for avoiding bankruptcy. Debt settlement is the process whereby you negotiate with your lender to accept a smaller amount than the total that is owed to satisfy the debt. While it can be an effective debt relief tool, it is important to understand all of the consequences of debt settlement.

One of the primary hidden costs involved with debt settlement is the tax consequences. Whether you are settling credit card debt, medical bills or student loans, any amount of debt that is forgiven by the lender will be included in a 1099-C filing. In other words, the debt that is forgiven can be considered as income for tax purposes. Thus, the thousands of dollars that is forgiven can come back to haunt you at tax time. Your tax liability may still be less than the amount forgiven, but if you are not prepared for it, the tax debt can be devastating.

If you are considering debt settlement, it is imperative that you confer with a knowledgeable debt relief attorney. There are no tax consequences when you file a Chapter 7 or Chapter 13 bankruptcy. Thus, you should determine whether the debt can be discharged before deciding what option is best for you.

We have handled hundreds of debt settlement and bankruptcy cases. Let us review your individual circumstances and help you understand the pros and cons of all of your debt relief options.

The “Milwaukee Bankruptcy Attorneys,” DeLadurantey Law Office, LLC handle Chapter 7 and Chapter 13 bankruptcies, as well as student loan assistance, debt negotiations, debt relief, mortgage loan modifications, and foreclosure defense and debtor’s rights matters. We serve the areas of Milwaukee, South Milwaukee, West Milwaukee, Milwaukee County, and Waukesha County, including the municipalities of Big Bend Village, Brookfield City, Brookfield Town, Butler Village, Chenequa Village, Delafield City, Delafield Town, Dousman Village, Eagle Town, Eagle Village, Elm Grove Village, Genesee Town, Hartland Village, Lac La Belle Village, Lannon Village, Lisbon Town, Menomonee Falls Village, Merton, Town, Merton Village, Mukwonago Town, Mukwonago Village, Muskego City, Nashotah Village, New Berlin City, North Prairie Village, Oconomowoc City, Oconomowoc Lake Village, Oconomowoc Town, Ottawa Town, Pewaukee City, Pewaukee Village, Summit Town, Sussex Village, Vernon Town, Wales Village, Waukesha City, and Waukesha Town. Call DeLadurantey Law Office by phone at (414) 377-0518.

 

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