Is there a way to legally eliminate debt? 

Recently, a client contacted us after hearing that our programs were not recognized by the courts. So, let's address this question:

Can you legally eliminate debt through a Debt Management or Debt Settlement Program?

And the simple, honest answer is YES !

Unsecured debts, such as:

• Credit card
• personal loan or line of credit
• bank loans
• cash advance loans
• medical bills
• repossessions

...are granted to the consumer under a contract or agreement. The consumer agrees to receive the credit (money/funds/item) with a promise to repay according to the contract.

What happens if the consumer cannot or does not repay the debt?

The creditor can attempt to collect through using various methods within the guidelines of the Fair Debt Collection Practice Act.  In most cases, a settlement offer of the account for less than orignially agreed upon, will be made.

When the settlement is completed, either paid in lump sum or in a series of payments, the account is deemed to have been either:

• Paid-as-agreed or

• Settlement-as-agreed

Your credit report will report this debt to have been paid in the same way with a ZERO balance. 

The "court" does not consider a supplemental payment plan or settlement agreement to be illegal as the creditor has the right to modify the original agreement!

If the debt forgiven is over $600, the the creditor may report it to the IRS and you would receive a 1099-C indicating that you may be responsible for additional taxes on the amount forgiven.

However, if at the time of the settlement (forgiveness) you were basically insolvent, meaning your debts (all debts: mortgage, car, student loans, credit cards, loans, etc.) were more than your assets (and in about 99% of the time they were), then you would not be required to pay any tax on the amount forgiven.

In fact you or your tax preparer can file intructions with IRS 4681 and then file a simple form IRS 982.

So, yes, you can legally become debt-free through debt management or debt settlement.

It may be in your best interest to seek professional help.