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Christopher Todd Morrison, P.C.
Affordable Bankruptcy
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Avoiding the debt forgiveness trap

Debt forgiveness may sound like an attractive option to Texas consumers who are overwhelmed by their financial obligations, but the companies offering these services often fail to live up to the promises they make. Even when they do, their customers are usually left with lower credit scores and unexpected tax bills. Debt forgiveness is based on the idea that lenders will agree to cut balances significantly in order to get at least some of their money back, but things rarely work out that way in the real world.

Companies offering debt forgiveness services sometimes advise their clients to stop making all of their monthly payments. They say that doing this will prompt lenders to enter into negotiations. There is no guarantee that this strategy will be successful, but consumers who choose this path can expect their credit scores to fall precipitously and will find borrowing far more difficult in the future.

With some exceptions, the IRS normally treats the amount that is forgiven as taxable income. When this additional tax burden is added to the upfront fees charged by most debt forgiveness companies, consumers may not actually end up saving very much.

Attorneys with debt relief experience could explain how options like debt forgiveness and credit counseling differ from personal bankruptcy. They could also point out that the bankruptcy laws are designed to provide an escape from crushing debt and offer the chance of a fresh start. When individuals file a Chapter 7 or Chapter 13 petition, the action puts at least a temporary halt to creditor harassment and collection efforts.

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