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Debt settlement can lead to an unexpected tax burden

| Jun 16, 2020 | Debt Relief |

Many Americans struggle with overwhelming debt, and as a result, many consumers are looking for ways to deal with their balances. Statistics indicate that one in three consumers in the United States have delinquent debt from student loans, auto loans and past-due credit card balances. In some cases, debt settlement companies offer a way out.

These companies assist overwhelmed Louisiana consumers by helping them negotiate their balances down. They can work directly with a creditor, or they can negotiate with a debt collection agency. In some cases, they are able to reach an agreement that allows a consumer to pay off his or her debt with one lump sum. They do this in exchange for a fee, but this can also lead to other unexpected expenses down the road.

The IRS can tax a consumer for any forgiven debt amounting to $600 or more. This means there may be a tax obligation based on the amount owed and what was actually paid. This can catch some off guard, and it can lead to additional financial struggles for someone who is already struggling with debt. It is prudent to carefully research the potential drawbacks of debt forgiveness and consolidation before moving forward.

When a Louisiana consumer is considering debt settlement, he or she may also benefit from learning more about consumer bankruptcy options as well. Bankruptcy actually allows for the discharge of certain types of balances or the repayment of debt over a period of time. It offers protection from debt collectors, and it does not lead to additional tax penalties. An assessment of the individual situation can reveal which option is best for dealing with overwhelming debt.

Facing Overwhelming Debt?