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Bankruptcy Help For Everyday People

The potential pitfalls of debt forgiveness

| Nov 23, 2020 | Blog, Credit Card Debt Relief |

While you may be able to obtain debt forgiveness from a credit card company or a North Carolina debt collection agency, doing so may not necessarily be the best course of action. Let’s take a look at some of the pitfalls of debt forgiveness as well as some of the alternatives that you may want to explore first.

The downfalls of debt forgiveness

In many cases, failing to pay a credit card debt balance as agreed could wreak havoc on your credit score as it may be listed as both in collections and charged off by the original debt holder. Typically, an account in collections will remain on your credit report for seven years.

Furthermore, any debt that is forgiven could be considered taxable income by the IRS. An exception may be made if you are deemed to be insolvent or if a debt is eliminated through Chapter 7 or 13 bankruptcy.

What are your alternatives?

Instead of seeking forgiveness, you may want to try to negotiate a new payment plan. This may be done by negotiating directly with a creditor or enlisting the help of a credit counseling firm. If you have good credit, you may be able to transfer multiple balances to a single credit card that has a lower interest rate.

Filing for bankruptcy may help you obtain credit card debt relief in a timely manner. An attorney may provide more insight into the potential benefits and pitfalls of doing so. He or she may also talk more about the process of seeking protection from creditors. For instance, you will likely need to pass a means test to qualify for a liquidation bankruptcy or take a credit counseling course before a case is discharged.