Credit card debt forgiveness–can you really get forgiveness from your credit card debts?
Many people get credit cards that they plan to use in emergencies or to help establish credit. As time progresses, the credit card turns into an instrument for daily use. Before cardholders know it, they are in over their heads in credit card debt. In some cases, cardholders have tens of thousands of dollars in credit card debt and no way to pay off the debt. Many people are in this situation, and they do not know where to turn. Debts do not have to control the lives of cardholders. Solutions are available that can turn a tough situation into a better situations.
What is Credit Card Debt Forgiveness?
Credit card debt forgiveness is a common practice that helps cardholders settle debt for a smaller amount of money. The smaller amount of money that the cardholders pay cancels the debt once the decided amount is paid. This is a common practice that debt collectors use when they are unsuccessful in collecting debts, or the debts collection agencies that they sold the debt to were also unsuccessful in collecting the debt.
Here is how to debt forgiveness process work. Debt collectors or creditors agree to settle the credit card debt for at least $600 less than the debt that is owed. The creditor cancels the dept after the cardholders pay the agreed amount. Most cardholders think that once the debt is paid and the credit card companies cancel the debt that the process is complete. Here is where the process gets a little tricky. Collection agencies and credit card companies are suppose to tell cardholders that the amount of debt that they did not pay has to be filed as income on their taxes. Many cardholders are surprised when they receive a 1099-C tax notice.
The 1099-C form comes in the mail, and the form may be dismissed by cardholders. Cardholders may think that it is a notice from a collection agency or a credit card company. The law requires that credit card companies and collection agencies must file a 1099-C with the IRS, and they are also required by law to send notice to the cardholders as well.
Imagine that cardholders have $5000 worth of credit card debt owed to a credit card company. The credit card company negotiates the debt down to $2000 and $3000 of debt is forgiven. Cardholders must report the $3000 to the IRS as “other income” on their taxes. They must use tax form 1040, and the “other income” goes on line 21. The forgiven amount of credit card debt can mean that the debtors owe money to the government during tax season if the deductions, income, and additional factors do not balance out when completing their taxes.
Tips on How to Get Debt Forgiveness
Debt forgiveness is available with collection agencies or credit card companies. Customers who have large amounts of debts that they know that they are not able to pay usually settle for this option. It helps them prevent their credit from being destroyed any more than it already has, and collection agencies and credit card companies report this information to credit agencies. A notice is placed on the credit reports that state that the debt was settled at a lesser amount.
Debt forgiveness should be exercised after other negotiations to collect the debt have been exhausted. Debt collectors are supposed to let debtors know that a 1099-C must be filed as other income on their taxes. Some debtors may not consider utilizing credit card debt forgiveness if they knew that it could create a problematic situation during tax time.
Here are a few additional tips to follow for Debt Forgiveness on Credit Cards
- Only accept debt forgiveness from the credit card company that is owed or a collection agency in which they sell the debt. These types of companies may or may not be legit. They may also charge expensive fees to handle the debt, and they may or may not be able to settle the debt for a lesser amount.
- Reach out to the credit card companies or collection agencies when they send notices to settle for a lesser amount. Debtors can also contact the debt collectors to ask for debt forgiveness options to settle the debt.
- Weigh the options before making a decision. If the forgiveness amount causes problems during tax time, it may not be a good idea to take the offer.
Credit card debt forgiveness is a great way to cancel a large amount of debt at a fraction of the amount owed. Make sure that the offer is beneficial so that tax time does not become a dreaded time of the year.