Have you had a debt settled for less than you owe?  If so, chances are pretty good that you also received a 1099-C for the amount of the "forgiven" debt amount.  WHAT?  How can that be possible? 

Unfortunately, if you settle your debts, the forgiven amount is considered taxable income.  However, you don't necessarily have to included it as taxable income.  Read on to hear Bob's story and how he was able to avoid paying taxes on his forgiven debt.

How to avoid paying taxes if you receive a 1099-C for FORGIVEN DEBT

Bob lost his job and started using several credit cards to make ends meet. He was paying for groceries, gas, and even had to take a cash advance once in a while to survive.Bob had every intention of paying off the cards, but due to our country's severe economic downturn, he could not find a job.

After about a year or so, he had added another $10,000 to his cards, making the total of all his credit cards to be about $22,000!The minimum payments on all of them totaled a little over $500 per month and he just couldn't meet his obligation.  After 3-4 months of non payment, most of his cards went into collections, debt collectors started

Bob had heard about DEBT SETTLEMENT and DEBT MANAGEMENT, but didn't know if he qualified.

After a FREE COUNSULING SESSION, it was clear that he could not qualify for the Debt Management Program and therefore chose to enroll in the Debt Settlement Program.

Let's see what happened during the Debt Settlement Program:

After searching the net and talking with several companies, Bob had chosen a reputable Debt Settlement Company to help him settle his debts.

His total debt was settled at an average of 40% of what he owed, so his creditors FORGAVE about $13,000 of debt.

Because the amount of the forgiven debt was over $600, Bob's creditor reported the settlement to the IRS and mailed him a 1099-C.  The 1099-C basically said that $13,000 had been forgiven and he needed to report that amount as additional income for the taxt year the forgiveness was granted.

But his Debt Settlement Company helped him understand that he was not going to be liable for the additional income and resulting tax on that income.

They provided him with a information about how to file IRS Form 982 and the other documents he needed to provide with his taxes.

IRS Form 4681, says that if, at the time of forgiveness, you were INSOLVENT (meaning your liabilities were greater than your assets), then the forgiven amount DID NOT HAVE TO BE INCLUDED as additional income!

Since Bob had completed an Asset vs. Liabilities worksheet, provided by his Debt Settlement Company, he was able to completely avoid any additional tax on the settlement or "forgiven" debt shown on the 1099-C!

If you have received a 1099-C and need help, we can help, please let us know!

Can a Debt Collector Garnish Wages or Other Income?

It depends... Debt collectors may or may not be able to garnish your wages or other income.

It depends on several factors:

• Type of income
• What state you live in
• What the debt is for

In most cases, debt collectors cannot garnish the following types of income:

• social security
• disability
• retirement
• child support, and
• alimony.

There are exceptions to this rule, so you must check your state's particular laws.

But, exceptions are usually not granted for federal (or state) taxes or student loans in delinquent or past due status.

As of May 1, 2011 (the same day as the death of Osama Bin Ladin), banks are required to review accounts for automatically deposited federal benefits (Social Security and Supplement Security Income, veterans benefits, railroad retirement, civil service retirement, and federal employee retirement) before they honor or allow a debt collector to withdraw money for a garnishment order.

If your bank receives a garnishment order, it is required to review your account for the previous two months and must protect any federal benefit AUTOMATICALLY deposited during that time frame or the current balance of the account, whichever is less.

For example, if you receive $1500 each month from Social Security benefits and an additional $1,000 a month in federal disability benefits, the bank would protect $5,000 or your current balance if it is less from garnishment.

Any amount above $5,000 in the account would be subject to garnishment.

Again, we are talking ONLY ABOUT RETIREMENT INCOME THAT IS AUTOMATICALLY DEPOSITED for you!  If you receive a check and deposit it yourself, this law doesn't apply.

And remember, this law is not going to protect you from money owed to the Federal or State Government or for back child support, so be aware.

If you are retired and have debt that has gone to collections, I recommend that you go to your bank and sit down with the manager or someone who really knows, and make sure you account is flagged as RETIREMENT INCOME ONLY.

If they will not honor your request, I'd look around for a bank that does.

At this time, Pennsylvania and Texas are the only two states that I am aware of that restrict wage garnishment.

In TEXAS, your wages are exempt or protected from garnishment EXCEPT FOR:

• Child Support
• Alimony
• Taxes
• Federal Student Loans

In PENNSYLVANIA, wages are exempt or protected from garnishment EXCEPT FOR:

• child or spousal support,
• obligations relating to a final divorce distribution
• back rent on a residential lease
• certain types of taxes
• student loans, and
• court ordered restitution in criminal matters

In other states, your wages can be garnished.  Usually, the amount is 25% of your net income, (after tax deductions).

Also, most states, like OREGON, have an amount of earned income, not retirement income that will be exempt from garnishment.  In other words, if you have a small income, it may be exempt from garnishment.

Bottom line....

If you have unsecured credit:

• Credit cards
• Store cards
• Personal loans
• Medical bills
• Non-Federal student loans

 OK, so some or all of your income may be exempt from wage garnishment, but you still need to deal with your debts!

What can you do about getting rid of that debt?

You have several options:

• Debt Consolidation
• Debt Management
• Debt Settlement
• Bankruptcy

But which Debt Relief option is best?

That depends on several circumstances.  Click here for a FREE CONSULTAION.

photo by: TJ Scenes

Making the choice between BANKRUPTCY and DEBT SETTLEMENT can be a daunting task.  The fact is, one is not the clear winner.  The option you choose will depend on several factors.

Here are some guidelines to determine whether Bankruptcy or Debt Settlement is the right choice for you. 

DON'T THINK OF BANKRUPTCY AS A "GET-OUT-OF-JAIL-FREE-CARD"!

As I research and blog about the debt settlement industry I'm in, I see too many sites that seem to say that Bankruptcy is an easy way to START OVER.

That statement is both True and false.

Before we look into when you should choose Bankruptcy over Debt Settlement, just remember this...

Bankruptcy is a statement that you cannot pay the debts you owe.  Say what you will, that is a hard thing to admit and can cause severe personal turmoil.  Although most people who have to seek bankruptcy protection from creditors do so as a last resort, it is still a very big and tough decision mentally.

DEBT SETTLEMENT IS NOT THE SAME AS BANKRUPTCY

Whether you qualify for a chapter 7 or 13 (personal bankruptcy), you are basically walking away from the debts you have incurred.  Your creditors get paid back very little, if anything on the money they originally loaned you with your promise to repay!

With DEBT SETTLEMENT, your creditors will get paid back approximately 50% of what you owe.  This is better for you because it shows that you made an effort and paid back at least a portion of what you owed.  Down the road, it will be easier for you to get credit when you need it.

BANKRUPTCY WILL SHOW ON YOUR CREDIT REPORT FOR UP TO 10 YEARS!

Make no mistake about it, bankruptcy will have an major affect on you and others!

You may not be able to rent an apartment for up to 2 years following a bankruptcy!

Many employment opportunities will not be available to you if you must state that you have declared bankruptcy in the past or if your prospective employer does a credit check!

Bankruptcy HAS A VERY NEGATIVE impact on your credit score!

In the long run, your credit and credit rating will not be as damaged through DEBT SETTLEMENT as it will be through BANKRUPTCY.

After a debt is settled, the credit reporting agencies:

• Experian
• TransUnion
• Equifax

...will show the debt with a $0 balance and "paid-as-agreed" or "paid-for-less-than-the-full-amount".

When your credit report shows that you have done something to take card of your outstanding debts, it will (believe it or not) start to improve rather quickly!

SO, DEBT SETTLEMENT IS ALWAYS BETTER THAN BANKRUPTCY?

NO!  Again, debt settlement companies that only offer debt settlement have to say that, but it is just not true!

Reputable Debt Settlement companies will discuss all of your options so that you can make the right choice!

After 10 years of helping people get out of debt, I have found that in 99.9% of the time, the client found themselves in severe financial trouble from several circumstances of which they had no control.  Such as:

• Loss of job and income
• Divorce
• Illness and/or disability
• Cut back on the hours of employment due to bad economy
• Forced retirement
• Fixed income that cannot keep up with inflation

At first, you use the credit cards to "JUST GET BY", with the intent on repaying them when things get better.  However, in many cases, things don't get better and now you cannot keep up with the minimum payments.  Then:

• Collectors start to call several times a day (HOW TO STOP CREDITOR CALLS)
• You may be served a SUMMONS demanding payment

You may qualify for a DEBT MANAGEMENT PROGRAM

In a Debt Management Program, you will...

• Have ONE MONTHLY PAYMENT (it may or may not be lower than the total of the minimum payments you now have)
• Have interest rates and late fees are usually lowered or forgiven
• Usually pay back all of your creditors in 48 months or so
• Have improved your credit scores after your balances are $0

But, they question is, can you afford the MONTHLY PAYMENT?

If not, then you need to look at DEBT SETTLEMENT:

• One monthly payment (a payment you can afford based on your circumstances)
• Creditor call slow down and stop
• Creditors are paid a percentage of the debt owed (avg. 50% plus or minus)
• Once your creditors have agreed to a settlement and it is completed, your credit report will show a $0 balance and start to improve

Ifyou cannot even afford the Debt Settlement payment, then you need to consult a BANKRUPTCY ATTORNEY, but be careful!  Not all attorneys specialize in bankruptcy and as the bankruptcy laws seem to always be changing, you must find one that is an expert!

STILL NOT SURE?  WE CAN HELP!  Give us a call at 1-877-492-4109 or simply click on the link below for a FREE Evaluation.

DEBT MANAGEMENT vs. DEBT SETTLEMENT - What's the Difference?

It's important to know that one program does not solve all problems.

If you are making the minimum monthly credit card payments, Debt Management program may be right for you.

Debt Management (also known as Credit Counseling) allows you to consolidate all of your unsecured debt into one low monthly payment and offers the following benefits:

• Pay less. Creditors will offer a plan to repay your debt at a reduced interest rate and in some cases, a lower payment.  Also, most creditors will wave late and over the limit fees AND bring your accounts back to current without making up those missed payments. This alone could save you thousands over the life of the debt!
• Pay off your debt faster. If you continue to just make the minimum payments, it could take you 20-25 years to pay off that credit card! In a Debt Management Program, you should be able to pay off your debt in three to five years, saving you thousands of dollars!
• Reduce your stress. Calls from you creditors STOP and you will have an end in sight.
• One, easy payment each month. You will have one monthly payment so you don’t have to juggle payments.

But, if you cannot afford the payment required by a Debt Management Program, Debt Settlement may be the answer.

Debt Settlement is a program designed for people:

• Who are delinquent or are starting to become delinquent on their payments
• Some or all of their debts have gone into collections or are about to be turned over to a debt collector.
• DO NOT want to file for bankruptcy

In a Debt Settlement Program, most people:

• Have a substantial reduction in their monthly payment
• Save thousands of dollars in both principal and interest
• Are DEBT FREE in 36-48 months
• and, AVOID BANKRUPTCY

DEBT SETTLEMENT CAN HELP WITH THE FOLLOWING:

• Credit Cards
• Lines of Credit
• Medical Bills
• Unsecured Loans
• Collections
• Repossessions

If you would like to learn more or if you have questions about these two options, our Debt Solutions Specialists are here to help.  Please give us a call at 1-877-492-4109 or simply click on the link below for a FREE COMPARISON of both programs based on your total debt!

If you find that your debt is out of control, it's always good to get back to the basics.   

DEBT CONTROL BASICS:

A)  DON'T BE A VICTUM OF "EASY CREDIT TERMS"!

We have all been at the check out stand and the sales person asks if we would like to get an instant 20% off the purchase.  All we have to do is just take a few minutes to fill out an application for their store card.

Sounds like a good deal, right?  WRONG

Most of the time, store cards are not a good idea. Let's say that your bill is $100 and with the 20% off it is only $80.  Nice savings.  I bet you are starting to feel like an Extreme Couponer! 

However, if you don't pay the remaining $80 off within 30 days and just pay the minumum payments, you could end up paying 2-3 times as much to finally pay off that card.  Not only that, but store cards often come with high interest rates.  Frugal shopper beware!

B) DON'T BUY SOMETHING IF YOU CAN'T AFFORD IT!

I know this sounds simple, but most people get in trouble with their credit as result of spending way beyond their means!

Here's what happens:

You already have a couple of credit cards charged up to about 70%-80% of the credit limit, and you are making the minimum payments each month without too much effort.

You "really need or want" that item and tell yourself something like "It would only increase my monthly payment by $20 and I can handle that."

                               WARNING!     WARNING!    WARNING!

• Your credit limits will start to be maxed out and that will result in a higher CREDIT RATIO.  Your credit score will decline.
• By the time you repay these cards making minimum payments, you could end up repaying 2-3 times as much as the current balances!
• If you should have a severe financial setback, such as Unemployment, Divorce or Major Illness, you could be in real trouble.

C) CONSIDER A DEBT MANAGEMENT OR DEBT SETTLEMENT PROGRAM.

If you find yourself starting to get into financial trouble because of TOO MUCH DEBT, consider a DEBT MANAGEMENT PROGRAM or a DEBT SETTLEMENT PROGRAM.

DEBT MANAGEMENT is a program designed to:

• Combine all of your payments into ONE PAYMENT.
• Reduce the interest rates and fees.
• Help you pay off all of your cards in about 48 months

But, if you do not quality for a DMP, you should consider a DEBT SETTLEMENT PLAN:

• One monthly payment much less than all of your current minimum payments
• May reduce your balances by 50% or more
• Avoid bankruptcy

If you would like a FREE CONSULTATION with NO OBLIGATION, CLICK HERE!

Just the word BANKRUPTCY sounds terrible! Before you decide if bankruptcy is best for you, here are 3 ways to avoid bankruptcy:

One of the most popular financial-advice gurus today is Dave Ramsey.  He has stated that BANKRUPTCY is one of the top five life-altering negative events a person can experience:

• Divorce
• Severe illness
• Disability
• Death of a loved one
• Bankruptcy

I'm not sure I totally agree, but most people will do whatever it takes to avoid bankruptcy. Bankruptcy basically means that you have taken on too much debt and cannot repay.

I have counseled hundreds of people in financial trouble for many years and it has been my experience that most people who are in serious financial debt got that way from circumstances beyond their control, such as:

• Loss of employment
• Illness or disability
• Death of a spouse or life partner
• Too little income after retirement

Here are 3 Ways To Avoid Bankruptcy

#1 Figure out where your money is going

The first thing you should do to avoid bankruptcy is to take time to complete a Budget or Financial Worksheet.  It sounds so simple, but most people I counsel have no idea what they are spending each month. All they know, is there is not enough money to pay for everything.

You have to know exactly where you stand, financially.  How much money is coming in and how much is going out each month.

I know it's very, very tight, but ask yourself if there are areas of your life or expenses that you could reduce or eliminate, such as:

• Do you have a large car payment? Maybe you could downsize or refinance to reduce your monthly payment.
• How about all those lunches, coffee, lattes?  Can you cut down to a couple times a week instead of every day?  Think of it as a special treat, not a necessity.
• Maybe now is a good time to quit smoking!  I know it's easier said than done, but at well over $100-$150 month it would be good for your budget and your health.
• Do you have to have that health club membership?  Could you work out at home instead to save $35-40$?

Have I made my point? You may be able to find a few hundred dollars each month that could possibly save you from bankruptcy!

#2 Consider enrolling in a Debt Management Program

If cutting your budget won't work, or you have already cut it as far as you can, then perhaps DEBT MANAGMENT (formerly called Credit Counseling or Debt Consolidation) may help.  Debt Management is a program whereby you can arrange repayment of your unsecured debts like:

• Credit Cards
• Store Cards
• Personal Loans
• Private Student Loans
• Medical Bills

You will have ONE MONTHLY PAYMENT which is divided and sent to each of your creditors per the agreement arranged with them by a DEBT MANAGEMENT COMPANY. The program is usually designed to repay 100% of your debt over 3-5 years.

The problem is that you may not be able to afford the monthly payment which is usually about 2.5%-2.7% of your total unsecured debt. Do a quick calculation to see if that fits into the budget you created in step 1.

Sometimes, the debt management payment may be higher that the very low (almost impossible ever to repay in your lifetime) minimum monthly payments that credit cards require! If you cannot qualify for Debt Management, then your next option is:

#3 Settle Your Debts for Less with a Debt Settlement Program

In a DEBT SETTLEMENT PROGRAM, negotiations are made with each of your creditors to accept much less (often 50% or less) of the balance.  You will be making a monthly contribution to a FDIC Reserve Bank Account where your funds accumulate for settlement offers.

Depending on several factors, you may able to not only GET OUT OF DEBT in 24-48 months or less, and you will avoid BANKRUPTCY.

Although you can negotiate with creditors on your own, it is not easy! We have been helping clients negotiate and settle debts for over 10 years.  Is DEBT SETTLEMENT FOR YOU? Find out today!

If cutting expenses, debt management or debt settlement will not help, then you should consult a qualified bankruptcy attorney. Bankruptcy is a way for you to get a fresh start and is not nearly as tramatic as you may think!

Here are 5 tips on how to eliminate credit card debt that you can use:

#1  STOP USING YOUR CREDIT CARDS!

Enough is enough!  You cannot continue to charge up your credit cards and ever hope to pay them off.

Suggestion... Keep the lowest interest rate card with the smallest balance for EMERGENCIES ONLY and DESTROY THE OTHER CARDS. It is only after you realize how deep in debt you are that you will stop using credit.

#2  TRY TO GET LOWER INTEREST RATES

You might consider consolidating your credit cards to one card that will offer a low or zero rate initially and then a reasonable rate (10% or less) after.

But be careful!  Some of the advertisements have a lot of small print that can end up costing you more money.

• Hidden rates
• Hidden fees

You can also call your creditors and ask for a lower rate. Tell them you are shopping around for better rates and will be transferring your balance if they will not help you.

DON'T GET TALKED INTO A HARDSHIP PLAN!

 #3 Use the SNOWBALL METHOD to pay off your credit cards.

The method is simple, yet very effective if:

• You are paying at least the minimum on all of your cards now
• You have additional money to increase the payment on one of the cards

If you cannot afford to do the SNOWBALL METHOD, then consider:

#4  DEBT MANAGEMENT PROGRAM 

A Debt Management Program will allow you to have:

• One payment per month
• It may or may not be lower than the total of all of your minimum payments due now
• Will reduce interest rates and fees
• Help you become debt free in 4-5 years!
  

If you do not qualify for a Debt Management Program or cannot afford the payment, then you should consider tip #5.

#5  DEBT SETTLEMENT PROGRAM 

A Debt Settlement Program is suitable for those under severe financial hardship such as:

• Unemployed
• Divorce
• Medical hardship
• Just not earning enough income to continue paying on the credit cards
  

A  Debt Settlement Program will negotiate settlements on your unsecured debts including:

• credit cards
• store cards
• personal (unsecured loans)
• repossessions
• medical bills

The final settlement amount can be 50% or less than the balance AND your payment will be a lot less than the required minimum payments or a DMP payment.

Before you consider bankruptcy, please contact us for a FREE FINANCIAL EVALUATION.

In this economy, Americans are up to their eybrows in debt.  In fact, the average American household with at least one credit card has over $10,000 in credit-card debt, and the average interest rate runs in the mid- to high teens at any given time.

Some debt is good

Borrowing for a home or college usually makes good sense. Just make sure you don't borrow more than you can afford to pay back, and shop around for the best rates.

Some debt is bad

Don't use a credit card to pay for things you consume quickly, such as meals and vacations, if you can't afford to pay off your monthly bill in full in a month or two. There's no faster way to fall into debt. Instead, put aside some cash each month for these items so you can pay for them with cash when the time comes.

Controlling your debt is possible if you start by getting a handle on your spending.

Most people spend thousands of dollars without much thought to what they're buying. In order to get a handle on your spending you need to creat a BUDGET. Write down everything you spend for a month, cut back on things you don't need, and start saving the money left over or use it to reduce your debt more quickly.

Get your debt paid off!

Now that you have gotten a handle on your spending, it is time to get your debt paid off.  The key to getting out of debt efficiently is first to pay down the balances of loans or credit cards that charge the most interest while paying at least the minimum due on all your other debt. Once the high-interest debt is paid down, tackle the next highest, and so on.

If you can't keep up with your payments or you have extremely high interest rates, you should consider a Debt Management or Debt Settlement program.

These programs will help you eliminate your debt quickly while saving you money!

Don't fall into the minimum trap

If you just pay the minimum due on credit-card bills, you'll barely cover the interest you owe. It will take you years to pay off your balance, and potentially you'll end up spending thousands of dollars more than the original amount you charged.

Watch where you borrow

It may be convenient to borrow against your home or your 401(k) to pay off debt, but it can be dangerous. You could lose your home or fall short of your investing goals at retirement.

Get help AS SOON AS you need it

If you have more debt than you can manage, get help before your debt is too far gone. There are reputable debt counseling agencies that may be able to consolidate your debt and assist you in better managing your finances.

DEBT RELIEF CAN HELP! 1-877-492-4109