file chapter 13 or enroll in debt management program

[jkimnj]

What is the name of your state (only U.S. law)? NJ
Hello,
I am in tremendous debt and behind payments with about 4 credit cards. I am looking to see whether first attempt to enroll in the consumer credit counseling program debt management program or file for chapter 13. I am concern with the legality of chapter 13 and legal fees involved, what it will do for my future versus the debt management program. I believe with both my credit score is already damaged. Please advise. I have not yet contacted consumer credit counselor nor attorney. Thank you.

 

[Gregeney]

It is a personal decision but be very wary of any debt management companies you might consider. Often times, debtors choosing to go that route get no benefit and in fact file a bk afterward. There may be reputable companies out there but do your research before you act. The BBB might be a good starting point.

 

[ForMyBrother]

Debt Management

We have been using DebtXs for the past 2+ years for our unsecured debt. Seemed pretty good until we finally went to file bankruptcy and was informed that any money your credit card companies or loans have to eat, you will get a bill at the end of the year for the unpaid amount, taxing you 33 1/2%. The IRS considers the money you didn't have to pay back as income.

EX: Credit card you owe $8000, Company settles for $4,000, you will owe taxes on the remaining $4000 that you did not have to pay back which equals $1340.

DebtXs never informed us of this loop hole, which I believe they should of from the get-go. It would have definitely discouraged me from using a debt relief company; which yes I know thats why they did't tell us. Now thousands of $$$ later we are filing bankruptcy.

 

[Nurse2Be]

The IRS considers the money you didn't have to pay back as income.

EX: Credit card you owe $8000, Company settles for $4,000, you will owe taxes on the remaining $4000 that you did not have to pay back which equals $1340.

DebtXs never informed us of this loop hole, which I believe they should of from the get-go. It would have definitely discouraged me from using a debt relief company; which yes I know thats why they did't tell us. Now thousands of $$$ later we are filing bankruptcy.

I didn't use a debt management company, but I did a "debt workout" with one of my credit cards after getting divorced. The cc company wrote off $7000 of my debt.

I just got a letter from the IRS two days ago saying that I owe $2665 because I didn't include the workout when I filed my taxes. I had absolutely no idea I was supposed to...turns out the cc company was supposed to send me a tax form, but they never did.

Just be careful, no matter what you do. Good luck.

 

[bigun]

I think a CHapter 7 or 13 is the prefered route over debt management. There is no tax liability and, the creditors are at the mercy of the bk court. There is no negotiation.

 

[ForMyBrother]

I think a CHapter 7 or 13 is the prefered route over debt management. There is no tax liability and, the creditors are at the mercy of the bk court. There is no negotiation.

So here is another question for you.

We paid off 3 out of the 6 with DebtXs. We went to file BR. on our credit report it only showed 1 out of the 3 paid less than what was owed, the other 2 still showed balances owed. Our Lawyer is adding in the 3 that are suppose to be paid off in the bankruptcy anyways, do you know if this will work?

We have never recieved anything either from the CC companies that settled. And with adding them 3 in the bankrupty, what happens if we get a bill for taxes owed? Can we add that into the BR???

 

[bigun]

Your lawyer is correct. Schedule anyone who could potentially have a claim against you.
Not sure about the tax question. I do know that just receiving a 1099C does not automatically create a tax liability. If you were insolvent at the time of the chargeoff and settlement, file IRS form 982. You can go to the IRS site and enter form 982 in the search function and you'll get a very detailed explanation.