October 19, 2015

Debt Forgiveness vs. Debt Write Off

Credit card companies may be very giving when it comes to your credit line, but they can be very quick to remove you from their service if you fail to pay your balance. Though it is unlikely that a company will forgive all of your debt, they will often take one of two options in order to rectify the problem on their end; they will either forgive the debt or write it off.

If the company forgives the balance, they usually accept a smaller amount owed and forgive the rest. For example, if your debt is $16,000 but you are without a job and only have $10,000, they may let you pay the $10,000 and forgive the $6,000. In this instance, the credit card company accepts the lower amount paid and forgives the rest without seeking repayment for it. This option is at the company’s discretion, and usually relies on the amount owed and the amount offered to pay. Under this settlement, the amount of debt forgiven becomes taxable income and you are required to pay taxes on it. The forgiveness will also be on your credit report, which can negatively affect your credit score.

If the company decides to write off the debt, they decide that you are uncollectible and take the debt off their books. However, it is still considered debt to the company, they claim it as debt lost and the company does not forgive that debt. It becomes an asset to the company and they are able to sell the asset to a third party. This essentially means that a debt collector can purchase your debt and then sue you to collect the amount owed. Once the collector receives a judgment against you, they can either garnish your wages or take the money out of your bank account to satisfy the debt. There are a few exemptions to what the collector can garnish, including Social Security benefits. They also can seek a judgment lien, in which they can seize your property and sell it in order to satisfy the debt. Your credit report will bear the burden of showing that you failed to make payments long enough that the company had to write off the debt.

If you have neither wages, money in your account, or any property for which they can seize, the judgment against you is virtually meaningless.

There is another option to get rid of your debt to a credit card company: bankruptcy. If you file, your debt can be wiped out. This is neither a forgiveness nor a write off; the company has little choice in the matter. Filing for bankruptcy, however, will be on your credit report for 10 years.

Credit card debt can be a scary concept, especially if you are uncertain about what to do in the event you choose wrong. Obtaining the assistance of an experienced bankruptcy attorney can help make the process less scary and leave you with the best possible outcome for your situation. Do not hesitate, give the Law Office of Michael A. Siddons a call today and see what he can do for your credit card debt. (610) 225-7500.