Debt Settlement And Income Tax

Debt settlement tax is what you need to consider seriously – particularly if you have run into debts injudiciously using your credit cards or burdened with insurmountable debts of any other type.

When confronted with an awkward debt situation, you have to necessarily choose between debt settlement and filing for bankruptcy as there is no viable third option available.

Debt settlement

Instead of declaring bankruptcy which may have undesirable repercussions, debt settlement is a more honorable and lawful way to come out of the debt crisis unscathed.

When you opt for debt settlement, the lending financial institution negotiates with you to substantially lessen the debt burden. The percentage of debt reduction, often referred to as cancellation-of-debt (COD), varies depending on the financial status of the debtor. In select cases, the COD can even exceed the usual norm of fifty percent to make the loan burden bearable.

It is therefore preferable that you engage the services of a professional debt management negotiator to derive maximum advantage. But you should make sure the debt management professional does not charge you exorbitantly lest you lose bulk of the benefit.

Income tax implications

You must not lose sight of some adverse income tax implications when you opt for debt settlement. As per Internal Revenue Service (IRS) guidelines, the income arising out of COD is taxable.

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