Do debt settlement and/or debt negotiation work as an alternative to bankruptcy? – Tom


Debt settlement or debt negotiation may be a better alternative to reducing your debt load than bankruptcy, but make no mistake about it – all can have a negative impact on your credit score for seven-plus years. One major negative often unknown or overlooked with settlements is that if $600 or more of a credit balance is “forgiven,” a Form 1099 will be sent to the IRS, and income taxes will be owed the following April 15.

According to the IRS, taxes on credit-card debt may be forgiven under the Mortgage Forgiveness Debt Relief Act of 2007, if the “cancelled debt [was] used to buy, build or improve your principal residence or refinance debt incurred for those purposes qualifies for this exclusion.”

A better alternative might be to contact a local agency that belongs to the National Foundation for Credit Counseling ( This type of counseling can help you turn things around, prioritize your cash flow and make prudent financial decisions. If your problems are serious, they will help you set up a Debt Management Plan to meet your obligations and right your financial ship. Best of luck.