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Can You Choose Credit Card Forgiveness?

If hardships have made it difficult or impossible to keep up with credit card debt, there are solutions available. Our bankruptcy attorney in Florida is often asked about credit card forgiveness and ways to get out from under credit card debt and is providing a closer look at what your options are related to credit card forgiveness.

What Is Credit Card Forgiveness?

Some loans and debts are eligible for forgiveness, meaning you are no longer required to make payments. For example, student loan debt is forgiven, or erased from your records, after meeting requirements related to certain types of public service. However, debt from a private, for-profit company is a bit different and is rarely forgiven outright. Instead, they will offer a settlement or will write off the debt instead.

Credit Card Debt Settlement

Most often, if a consumer has fallen seriously behind on credit card payments, the credit card company will offer a settlement. For example, you owe $6,000 and haven’t made a payment in several months, so they will reach out to you offering to settle the debt for $3,500. You pay the offered amount, and they will absolve you of the rest of the debt.

The biggest concern with this is that rarely can people afford to make a large lump sum to pay off the debt, but it’s not the only one. Even if you do settle and are out from under the debt, the company can leave a mark on your credit report stating that the debt was settled for less than the owed amount. It is also important to note that any forgiven debt is considered taxable income and can affect your tax payment for the fiscal year.

Debt Is Written Off

If a credit card company doesn’t receive payment and any communication is ignored, the credit card company may choose to write off the debt. This means they will remove the debt off of their books and cease contact. However, the debt still exists, and a debt collection agency will most likely purchase the debt for pennies on the dollar and then begin collection processes against you. This can include sending you harassing letters and phone calls to seeking a judgment and wage garnishment in a court case.

When debt is written off or purchased by a collection agency, this can also have serious repercussions for your credit rating.

Choosing Bankruptcy Over Credit Card Debt Forgiveness

If you are unable to pay your credit card bills, you may find that filing for bankruptcy is the right option. There are two main types:

  • Chapter 7 bankruptcy allows you to liquidate your valuables, pay what you can to debtors, and then what can’t be paid is discharged. This option is only available to people who meet specific financial guidelines.
  • Chapter 13 bankruptcy allows you to restructure and pay down your debts for three to five years. After the agreed upon payments for the set period of time, any debt left over from the filing is discharged with the exception of your student loans and domestic debt like alimony.

While bankruptcy can stay on your credit for seven or ten years, similarly to a write-off or settlement, the difference for you is that the debt is eliminated and you’re able to begin moving forward. Unlike a settlement that can wipe you out financially and still damage your credit, bankruptcy allows you to restructure your debt so that it’s manageable or discharge it when it’s not, and the debts discharged are not taxable income.

Schedule a Free Consultation with a Bankruptcy Attorney in Florida

If you have credit card debt and can’t make the payments, bankruptcy may be the right step for your future. To learn more about your options, schedule a free consultation with an experienced bankruptcy attorney in Florida today by calling (954) 922-2283 or filling out the form below to get started.

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