Posts Tagged ‘credit card debt settlement laws’

Credit Card Debt Settlement Laws

If you are considering using a, you must be well aware of the laws that are applicable in these types of cases. Though there are several legal provisions regarding forgiveness of debts in the US code of law, it can be a tricky slope to navigate. It is legal to offer settlement services, but there are laws to regulate the activities of such companies. Besides that, there may even be some kind of tax obligation after you have settled the debts by paying a certain percentage of the actual total due in one lump sum.

The Basics

As per the process of credit card debt settlement, you contact a creditor either on your own or with the help of a professional mediator (who is duly licensed to offer this type of service) and negotiate an arrangement to pay less than the total amount of money you owe in final settlement of the debt. Debtors usually end up paying only 30-50% of the entire debt to get rid of their debt obligations. However, the success of these programs largely depends on your negotiation skills. Besides that, it is also important to note that the creditors are not legally obligated to accept your proposal. It is entirely up to them to decide whether they should reject or accept your proposal or make a counter offer.

1099-C Form

Once your debts are settled through a credit card debt settlement program, you will receive a 1099-C form from your creditors. It is also known as cancellation of debt form. Once you receive the form, it means the settled debt now must be reported as taxable income while you are filing your tax return. For example, if the actual outstanding due was $8,000 and you succeed in settling the debt by paying only $5,000, the difference of 3,000 will be considered as taxable income and you must report the same on your tax forms. However, there can be some exceptions also. For example, if the settlement is a part of the bankruptcy procedure, the settled debt will not be taken as taxable income.

Rules For Preparing Proposals

There are no specific rules to prepare proposals for credit card debt settlement. It just has to be reasonable enough. Most importantly, any proposal makes sense only when the creditors agree with that. Therefore, you have to be very careful with it. You do not want to invite anger from your creditors by making a proposal that benefits you only, such as the one where you request to settle debt by paying only 10% of the total outstanding due.

With the rapidly growing number of consumers who are struggling with mounting , creditors are always willing to accept a proposal for credit card debt settlement. In fact, writing off the debts is crucial for the survival of the credit card companies. As per the latest reports, banks are likely to forgive over $400 billion of debts in the coming five years.

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