There is no set formula, and don’t let wishful thinking make you believe promises made by debt settlement companies and others feeding off your sense of fear or guilt. It is true that oftentimes credit card companies will offer to settle on stale debts. But sometimes they don’t. And the settlement amounts vary. Moreover, creditors may (and often do) sue you. Unless you have a valid defense for the lawsuit, you may lose the case. They can get a judgment against you and garnish your wages, take your money in your bank account or put a lien on your property.

Assuming they do settle, what the creditors and debt settlement companies don’t tell you is this: the amount forgiven will be considered income to you and you will be taxed on the amount forgiven. It’s better to owe your credit card money than the IRS because you can discharge the credit card debt in bankruptcy much more easily!

Posted in: Bankruptcy Myths Faq