Page 63 - Workbook1E

4 Debt Management Options
There are debt management companies, both profit and non-profit, that can help with other options if your debt is so great you’re unable to even make the minimum payments. A certified credit counselor should also be able to explain and review various options and provide you with debt settlement advice and debt negotiation services.
Why be careful when choosing a Debt Negotiator?
You may find they offer to ease your debt but actually put you further in the hole with hefty fees and more unpaid debt. Again, get their fees in writing. A debt negotiating company may have you stop making payments to creditors and send them the money instead. The money is placed in an account until the debt negotiator makes an offer to your creditors. It may be several months before they have enough funds to make a reasonable settlement offer. After several months of not paying your creditors, your credit can be trashed.
All these issues must be discussed up front.
Also determine if they understand various legal technicalities, and will get any compromise in writing, before money is disbursed. These elements include the negotiated payoff balance, method of payment, time frame during which the offer is valid, and the name of who approved the negotiation on behalf of the creditor.
CAUTION: Possible Tax Trap
Even if your creditor reduces the amount you owe, it doesn’t mean you’re free and clear. You may have to pay the Internal Revenue Service for your DOI (Discharge of Indebtedness) income. The IRS considers the amount forgiven as income and the
creditor will probably send you a 1099-C form to report it at year end. There are some exceptions to this rule, but remember to consider all the financial implications including taxes for debt write-offs.
Settlements
Debt Settlement is when you negotiate a reduced payoff with your creditors —called a “settlement.” Typically this is used when your financial situation is in crisis. Your creditors may be willing to accept less than full payment versus no payment at all; often the alternative is bankruptcy.
Options for Eliminating Your Debt
“Like I said Mr. Jensen... We’ll get every last drop.”
“What is the difference between a taxidermist and a tax collector? The taxidermist only takes your skin.”
~ Mark Twain
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