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Once the settlement amount is paid off, the remaining balance debt amount is simply forgiven.
Although enrollment into a debt settlement program does not get reflected on the credit report of an individual, the credit score will drop whenever the debtor defaults in payment. However, once all the existing debts are settled, the status of your debt settlement accounts gets changed from unsettled or unpaid status to settled or paid-up debt status.
But although debt settlement is a helpful and viable option, its greatest drawback is that the potential tax liabilities associated with the savings are very high. However, what one needs to realize is that the total amount of money that you end up paying to the creditor, plus the income tax liability, is far less than what you would have ended up paying if you had not opted for a debt settlement and had continued making the minimum monthly repayments of the total debt amount. When opting for debt settlement, the debtor must pay tax on the settlement amount. However, the IRS allows the first $600 of debt settlement to be exempt from taxes. Therefore, if the amount of debt settlement in your case is just $600, you will not need to pay any taxes at all.
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