Debt Relief – The Hidden Costs

by | Jun 5, 2020

Many debt relief programs require payment of half of the consumer’s take-home income.  Does this actually sound like a solution? Hell No! You didn’t have enough money to make payments and live on before! This is just going to make things worse and is setting you up to fail.

Consumers participating in these programs are also frequently required to make lump sum payments to the creditors after the company has “negotiated” on their behalf.  If you are unable to pay this lump sum (and most can’t) the debt relief agency frequently advises you to stop paying your bills until you have enough to pay the settlement.  This exposes consumers to additional late fees, interest charges, and even more bad credit reporting.

In a Chapter 7 bankruptcy, your debts are discharged and no payments are required.  In a Chapter 13 bankruptcy, a repayment plan is structured and the payments are based on what is within the consumer’s budget after deducting reasonable living expenses.

Tax Consequences of Debt Relief

According to, a provider of articles, resources, and tools for consumer debtors, there are serious tax implications for choosing a debt relief program.  Any amount of your debt that is forgiven or cancelledis treated by the IRS as regular (read: “taxable“) income.  This means that unless you are have a specific exception or exclusion, you will be required to pay taxes on the amount as if you earned it in your paycheck.

In bankruptcy, the tax consequences are simple: there are no tax consequences.

The Conclusion – The answer is simple, bankruptcy is a much cleaner and more direct solution

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