September 19, 2018

When Should You Take a Chance With Debt Settlement?

“Dennis Firenze, computer salesman, discusses the troubles he has encountered during his plunge into debt. Debt is a serious issue that many of us eventually have to deal with. It has been no secret that more and more Americans are taking a turn into debt after the economic meltdown, but when does debt settlement actually make sense? Firenze jumped into the real estate industry expecting that the high rate of vacancy at his condos in Chicago would be able to help him build a successful real estate career. Instead, he found himself headfirst in over $270,000 worth of credit card debts. This is a reality that is striking thousands of Americans across all four corners of the country and can turn into serious issues, such as wage garnishment, increased taxes, and any other means the creditors can access to have their money returned..

At one point, Firenze stated that he was paying over $19,000 more than he was actually making from Chicago condos. He eventually created standing debts on a total of 13 cards, pulled all the money from the college savings of his children, and even drained what was available within his 401k. The debt collectors eventually got sore of the games and began what Firenze described as “”brutal”" calls; asking for up to $80,000 within a day’s period at some points. While he continued to attempt negotiations with the creditors, he eventually decided he needed to take a chance with Debt Settlement USA. After a good period of time, and some hefty fees, Firenze was able to settle debts for fractions of their actual cost.

Most people are afraid to turn to a debt settlement company in times of need. The entire industry is unregulated and customers always feel they are at risk when they decide to place their trust in strangers. Unlike debt consolidation and credit counseling, which basically gives you a larger loan to cover your smaller ones, debt settlement actually wants their clients to avoid bankruptcy and payments, but instead save up all the cash they can. In turn, the company is able to settle with the creditors for rather large amounts. Their fees may be know for being high, but they still offer the chance for customers to save huge sums of money.”

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An Overview Of Debt Settlement Laws

There are many people who have fallen deep in debt and are unaware of how debt laws can impact their situation. Debt settlement laws are designed to give legal protection to both creditors and debtors in regard to outstanding loans.

Debt Settlement Laws

There are many circumstances that can lead to financial troubles. People lose their jobs or contract chronic illnesses and are unable to work. Some families experience dire problems when a primary wage earner dies unexpectedly. Whatever the reason, settling debts can be a viable solution for getting the situation under control.

Basically, the law offers a legislated structure which strictly regulates the methods that creditors may use to collect money owed to them. At the same time, it outlines the various rights of those who loan money and those who owe. This system is designed to eliminate unscrupulous collection practices and provide suitable options for all concerned parties.

Debt settlement is essentially a process of credit arbitration or negotiation. Consumers have several options in order to take advantage of these kinds of procedures. First, they might attempt to arrange their own settlements. There are numerous books, videos and seminars that can aid a debtor in negotiating on their own.

However, it is usually advisable to use the professional services of an attorney or a debt settlement company. The law can often be complex and confusing for the average person. It is generally best to seek the advice of experienced professionals who deal with the process on a daily basis.

When an agreement is properly negotiated, a creditor may agree to forgive a substantial portion of the overall debt and make arrangements for a smaller portion to be repaid. It is important that correct procedures are followed. An arrangement of this type will become legally binding for both parties and must be adhered to by all involved.

In most cases, a negotiation will not only reduce the total amount owed, but will also stop any additional late payment or other associated fees that could escalate the situation. The amounts agreed upon will normally be accepted as payment in full for all arrears. Once again, this will be a binding contract that requires both sides to fulfill their obligations.

Before anyone starts, it is always wise to know the specifics of these laws in their own individual areas. While the federal government regulates some factors, the law can also vary from one region to another. State and local laws will not over rule national ones, but they may provide additional alternatives.

In any event, it is imperative to have all the details that apply to each individual circumstance. While a lender may not unduly harass those who owe to them, they may have the right to file a legal claim and take the case to court. In some instances, they can report unpaid balances to the tax service, which could be viewed as a form of income and may be taxed.

Regardless of the situation, anyone considering a settlement needs to be fully aware of how any agreement may affect their present and future financial standing. While these agreements are frequently easy to enter into, they may be difficult to alter later.

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Tax Implications Of Getting A Credit Debt Settlement

Some creditors will reduce the total amount of debt outstanding in order for the borrower to achieve credit debt settlement sooner rather than later. The creditors may also reduce the outstanding amount so that it is easier in terms of monthly payments each month. The term for this is either cancellation of debt or debt forgiveness.

Credit Debt Settlement

Borrowers however are not always completely let of the hook as often the Internal Revenue Services will consider this unpaid portion of the money owed to be income that is worthy of tax. Should this occur the borrower may well find him or herself paying extra tax than he or she had budgeted for. Borrowers may find themselves doing the math to see if it is really worth getting this kind of relief from the creditors.

When a borrower has received any kind of forgiveness of debt he or she can expect to receive a tax form in the mail. The form will contain details pertaining to the borrower and the amount of money that has been written off by the lender. When the borrower files his or her tax returns this form must accompany the other paperwork. If the borrower fails to do this then he or she may be liable for fines and or penalties. There may be certain circumstances that will permit this to not be considered as extra income.

The Internal Revenue Services considers money owed that has been forgiven on credit cards, negotiated pay offs and short dales on real property as additional income. Any forgiveness on bank foreclosures is also considered as taxable income. In order for the forgiveness to be considered as income the amount has to be six hundred dollars or more.

Certain debts are not considered to be taxable by the Internal Revenue Services and two such examples are school loan debts and debts that are part of a bankruptcy file. In some cases certain loans on farms are exempt as well. When a borrower is already insolvent any forgiveness would not be taxed as income.

If a loan was for the purposes of repairing a primary residence or for the purposes of building such a property, then this would not qualify as taxable income. A single person can qualify for as much as two million dollars worth of forgiveness and married persons one million dollars each. The form should specify the type of debt, the amount of money owed and the reason for the forgiveness.

There are three forms that are used by the Internal Revenue Services and these are the form 982, form 1099-c and form 1099-A. The 1099A form is not the concern of the consumer as this form is completed by the lenders or collectors of the outstanding money. The lender will send the 1099-C to the consumer after the loan has been forgiven. The information on the form will be used by the borrower to inform the Internal Revenue Services. Should the borrower wish to claim exemption then he or she will complete the form 982.

This credit debt settlement is helpful as it can reduce monthly payments or write off money owed completely. It is important that people are frank about this with the IRS ans failing to do so could result in problems with the law. The best solution is to try not get into this situation in the first place.

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