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The potential negative consequences of a debt settlement

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The potential negative consequences of a debt settlement

It isn’t uncommon for Kentucky residents and others to fall behind on car payments, medical bills and other debts. Those who don’t believe that they can pay a debt balance in full may want to negotiate a settlement with a lender. If a balance has been sent to a debt collection firm, that firm may also be willing to take less than what a debtor originally owed.

There are many potential issues that debtors should consider before they decide to pursue debt forgiveness. For instance, it may have a significant impact on a person’s credit score for several months or years. Typically, accounts that are settled will listed as such on a credit report as opposed to paid in full. In addition, the IRS may require individuals to pay income tax on more than $600 in forgiven debt.

Those who are insolvent or who had their debts discharged through bankruptcy may owe the federal government nothing. As lenders are under no obligation to accept a debt settlement proposal, individuals may want to explore other options to become debt-free. These options may include a credit card balance transfer or applying for a debt consolidation loan. Using these tools may allow a person to obtain more time to pay down an outstanding balance while also paying a lower interest rate.

A person who wants to learn about bankruptcy & debt relief may be able to do so by talking with a legal professional. An attorney may provide more details about filing for Chapter 7, 11 and 13 bankruptcy. Legal counsel may be able to talk more about obtaining a debt settlement or negotiate a debt settlement on an individual’s behalf. If a debtor files for bankruptcy protection, an attorney may be willing to represent that person in court.