False Promises From Debt Settlement Firms
Debt settlement firms usually claim that they will settle your unsecured debts below the total owed amount.
For example, if you owe $20,000 in credit card debt, the debt settlement firm will tell you that it may get the creditors to let you pay your debt off for $12,000.
You may try to settle your current debts, free of charge.
You don't have to ask the debt settlement firm to do that for you.
But always remember that if a creditor is willing to forgive a percentage of your debt, the IRS may probably consider any forgiven amounts as your income and you'll be taxed on it and if you get an IRS 1099 form associated with a previously settled debt, you should talk to the CPA.
If your CPA can verify that you were insolvent when a part of your debt was forgiven, you will not be taxed on the forgiven amount.
You are insolvent if there is not enough money to pay the debts and living costs and there are no assets that can be liquidated to pay off your debts.
A few debt settlement firms will also promise you that after they settle your debts, they may get all the bad reports related to these debts removed from the credit history.
That is not true! Only a creditor that previously reported the bad report may remove it.
If you are willing to work with the debt settlement firm, you can be told to stop paying those unsecured creditors and to start sending your money to the firm.
However, the problem is that sometimes your debt settlement firm is just all talk and absolutely no action.
Your firm sometimes can't settle your current debts for less.
As a matter of fact, it may not even try.
Then, if it does finally decide to settle the debts, it can take months for your firm to accumulate sufficient money from your payments to propose debt settlements.
In the meantime, your debts are not paid, your credit history will be tainted, and the total owed amount is rising because penalties and late fees are accumulating.
For example, if you owe $20,000 in credit card debt, the debt settlement firm will tell you that it may get the creditors to let you pay your debt off for $12,000.
You may try to settle your current debts, free of charge.
You don't have to ask the debt settlement firm to do that for you.
But always remember that if a creditor is willing to forgive a percentage of your debt, the IRS may probably consider any forgiven amounts as your income and you'll be taxed on it and if you get an IRS 1099 form associated with a previously settled debt, you should talk to the CPA.
If your CPA can verify that you were insolvent when a part of your debt was forgiven, you will not be taxed on the forgiven amount.
You are insolvent if there is not enough money to pay the debts and living costs and there are no assets that can be liquidated to pay off your debts.
A few debt settlement firms will also promise you that after they settle your debts, they may get all the bad reports related to these debts removed from the credit history.
That is not true! Only a creditor that previously reported the bad report may remove it.
If you are willing to work with the debt settlement firm, you can be told to stop paying those unsecured creditors and to start sending your money to the firm.
However, the problem is that sometimes your debt settlement firm is just all talk and absolutely no action.
Your firm sometimes can't settle your current debts for less.
As a matter of fact, it may not even try.
Then, if it does finally decide to settle the debts, it can take months for your firm to accumulate sufficient money from your payments to propose debt settlements.
In the meantime, your debts are not paid, your credit history will be tainted, and the total owed amount is rising because penalties and late fees are accumulating.
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