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I have 18k in debt…

(a total of 3 credit cards, one a business credit card and the other 2 personal credit cards). I’m self-employed. I live in Texas and was hit hard by Hurricane Ike. As a result (cont…)my business suffered, I have little to no income and I’m now drawing unemployment which is barely enough for necessities. I’ve been unable to pay my credit cards debts however up until the point, I had perfect paying history. My 3 credit card companies deffered my payments for three months. As of December I had to make payments but my financial situation hasn’t gotten any better. With the help of families I’ve been making payments, but it’s frustrating because I made one payment of $300 and $222 went towards interest. Payments went up from $300 to $366 per month with no explanation. When I called to inquired aand told that I could only ppay the $300 and not the aaddtional $66, unknowingly to me they transferred me over to some kind of credit source. I thought they were working with me, but as I was giving them info on my financial situation, they were lowing all of my credit card limits. They told me that they were trying to help me. I asked them not to lower it and that I would figure out a way to come up with the money. I didn’t want to damage my credit score, they told me that it was too late and that they had just lowered my limit. Another card who deferred my payment, reported me to the credit bureau and told me that it was a mistake, but did nothing to rectify it. I want to pay off all of my debt, but I feel that the card companies are working against me and I see know way of getting out from under this debt. The ironic thing is that the one of the companies who has been unfair to me was one of the banks who the Government bailed out, but they’re coming after consumers violently.

I’m considering Debt settlement to try and rectify it and pay the $500 monthly to the debt settlement, they’re telling me for about $18 months at $450 per month. I can do this. By the way I just got a job but not at a salary that will allow me to pay off the cards with the interest rate and unfair tackets that they’re using. After reading your information I’m having second thoughts and thinking that maybe I should come up with another plan.

This is my question:

I understand that I will still be accumulating interest and late fees on cards during the debt settlement process.

If I go to a debt settlement co. with a card debt of 15k and durting the settlement process I accumulate an addtional 5k with interest and late fees, will I be responsible for settling 20k now instead of 15k?

If so, pay the settlement co a total of $8k, their cut is $2k and the cards or settled for a total of $6k, is my settlement considered to be $6k and not $8k? So do i pay irs taxes on the $20k minus the $8k or the $20k minuse the $6k? i.e. am I now responsible for $20k instead of $15k in debt?

What would I owe to irs? Taxes on $15k minus the $6k that the credit cards actually settled for ($9k) or $15k minus the $8k which I actually paid ($7k).

Or would I be responsible for paying taxes on the accumulated fees and interest which would be $20k minus the $6k ($14K) or $20k minus the $8k ($12k)?

I want to do what’s morally right and what’s right in the sight of God, but it’s more than I can handle. Do I stay in debt the rest of my life because because of a natural disaster that I had no control over?

I’m thinking that even with paying taxes it would stop interest and give me some relief. Maybe I can just save for the taxes. Please enlighten me on what I amount I would be responsible for paying taxes on?

P.S. The Credit Card companies/banks who issue the cards where unfair to a lot of people after Ike. I know a lot of people who were self-employed and are dealing with the same issues with card companies.

ANSWER: Thanks for the detailed question….The bottom line is that you will pay taxes on the debt amount that is forgiven by the credit card companies. I am not an accountant so you would want to get an official answer on this but my understanding is that the fees you’d pay to the settlement company would not count.

So if the credit card company settles 18 months from now and at that time you owe $20K but settle for only $9K and pay the settlement company $3K to handle your case, then you’d owe taxes on the $20K-$9K=$11K. That represents (in the IRS’s eyes anyway the amount you “saved” and therefore would likely be treated as income.

A good debt settlement company should be able to assist you and help you prepare for any tax bill you might have so you have savings for it.

I hope that helps.