Articles Posted in Debt Settlement

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house money.jpgHere’s an example in Tampa, Florida this month for one of our foreclosure clients who wanted to keep her house and avoid the possibility of a deficiency judgment:

New monthly payment: $933.45 with escrow Old monthly payment: $1,491.35

New interest rate: 4% fixed Old interest rate: 7.75 % fixed

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1099c.jpgCreditors are busily sending out more 1099C’s then ever before according to a story by Jeremy Campbell of Channel 13 in Tampa, Florida this week. The news story “How the IRS taxes debt” explains that debt settlements while good, come with a penalty. Consumers are taxed on the forgiven debt sometimes months or years after the settlement. More than 6 million consumers are expected to receive 1099C’s this year, double last year.

One important point that the story did not address. Cancelled debt is not taxed in a bankruptcy. Just saying.

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pros_cons.gifI often sit with my clients in Tampa, Florida and perform a simple test: I make two columns on a piece of paper and list the pros and cons of filing bankruptcy versus trying to settle their debt.

More often than not, the bankruptcy column has many more pros, while the debt settlement column has more cons. For instance, in a Chapter 13, the monthly payment is usually much less. In a Chapter 7, the monthly payment is zero if there is no disposable income.

Debt settlement on the other hand usually requires the client have lump sum amounts available to offer to get any kind of substantial reduction. So they have to save up. The client has to reach satisfactory agreements with each creditor, or they still have leftover debt. Finally, in debt settlements the cancelled debt is taxable by the IRS. Not so in bankruptcy.

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