Negotiate A Debt Reduction
You have tried all the suggestions, read all the savings articles
and tips, used up your savings and still you aren't able to make
ends meet. Before you move onto the last resort, there is one more
piece of leverage you can use to negotiate with. That leverage is
the threat of declaring bankruptcy.
If you are truly in dire straights with no way to pay back all
your debt, tell your creditors exactly where you stand. Explain
that if the current terms can't be renegotiated, the only option
you will have left is to file for bankruptcy. Don't expect them to
simply take your word for it. You will need to provide proof that
you really are in the financial trouble you claim. If you are able
to do this, they will more than likely be willing to sit down and
try to work something out. Why? Because if you do file for
bankruptcy, the chances of them getting anything is quite slim,
and a little is better than nothing. If you don't want to do the
actual negotiating yourself, there are a number of companies that
will do the negotiations for you.
In doing this, keep in mind that if creditors do agree to write
off some of your debt, there could be tax implications for you.
The IRS requires financial institutions that forgive $600 or more
of a debt's principal to send you and the IRS a Form 1099-C and
you must report this as income. The exceptions to this are if you
discharge the debt in bankruptcy, or you were insolvent before the
creditor agrees to settle or write off the debt. Insolvent
usuallly means that your debts exceed the value of your assets. To
figure out whether or not you are insolvent, you have to total up
your assets and your debts, including the debt that was forgiven.
If you have enormous debts, then it's advisable to talk with an
accountant familiar with tax law that can calculate what, if any,
tax implications will come from renegotiating your debt.
If your debts are so dire that you don't see even this line of
action resolving your debt issues, then it's time to consider the
last resort...
THIS CONTENT IS FOR INFORMATIONAL PURPOSES ONLY. THIS IS IN NO
WAY GIVING ANY LEGAL ADVICE OR REPRESENTATION. THE INFORMATION
CONTAINED HEREIN WAS COMPILED FROM VARIOUS ARTICLES. FOR ANY LEGAL
ADVICE OR REPRESENTATION SEEK YOUR OWN LEGAL COUNSEL.
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