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Debt settlement may leave people owing money to the government
By Edith Barlow on Apr 13th, 2010
Although some people up to their necks in credit card debt may consider a settlement, they should keep in mind they may end up owing money to the government.
Forgiven debt is considered by the Internal Revenue Service as income, which tax payers will have to report on their returns. As a result, they may end up owing money to the government, furthering the money troubles.
Consumers may have options when it comes to trying to pay off what they owe to Uncle Sam. Personal finance expert Liz Pulliam Weston wrote recently that some consumers may be able to get a home equity line of credit, which may have an interest rate that will be lower than government payment plans.
However, not everyone will be able to qualify for a loan, which is why they may have to ask for help from the government.
"If you owe less than $25,000, you can file online for a short-term (120 days) extension or a longer-term installment plan," Pulliam Weston wrote.
Along with leaving people owing money to the government, debt settlement options may have other pitfalls. Reaching a settlement can have an adverse affect on a person's credit score, which will make it more difficult for them to get a loan.
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