When you enter into a loan agreement, it’s implied and expected you’ll repay the debt in full with interest. However, nobody is perfect. There are many life events that can affect your ability to meet debt obligations, especially when you accumulate several debts over time. If you find yourself unable to make monthly loan payments, you and your creditors are faced with how to resolve that. There are several ways creditors can try to continue collecting a debt and there are several ways for you to relieve that debt. With the help of Behm Law Group, Ltd., filing for bankruptcy in Marshall, MN, can be a viable way to resolve debt issues.
The three primary ways a debt issue can be resolved is to cancel a debt, charge-off a debt, or discharge a debt. Debt discharge occurs through the bankruptcy process, but certain types of debt can be cancelled or charged-off. The process of charging-off or cancelling a debt is most often done outside of bankruptcy, but it can be accomplished during a case without significantly affecting the proceedings.
If you’re unable to repay a debt, a creditor may choose to cancel/write it off. You can negotiate with your creditors to convince them to cancel debts even while you’re in the process of filing for bankruptcy. However, you will be taxed for the amount you owed on the debt because the cancellation of the debt is considered income for tax purposes. For example, if you owed $1,000 on a debt at the time of its cancellation, you will be taxed for that amount. The exception to this is if the debt amount was $600 or less.
Creditors can also choose to charge-off a debt if you’re unable to repay it. In this case, the debt record is removed from the creditor’s records and the creditor can either attempt collections in-house or sell the debt to a debt buyer. By selling the debt to a debt buyer, the creditor is able to claim a tax exemption. You still have the obligation to repay the debt but your obligation is to pay the new debt purchaser instead of the original creditor.
Choosing to file for bankruptcy may be a difficult decision to make, but the benefits are many. Discharging your debts through bankruptcy is the most effective way to permanently end your repayment obligations without any tax liability. If you have your debts discharged through bankruptcy, you are not taxed on any debt so discharged. In any event, there is a specific IRS form to be excused from having to file taxes on debt discharged in bankruptcy.
Filing for bankruptcy gets a negative reputation, but it’s an effective legal process designed to provide debt relief to individuals and businesses struggling with overwhelming financial burdens. Cancellations and charge-offs both have many catches and will still follow you to tax season.
With the help of a quality lawyer, you can file for bankruptcy and successfully discharge debts for good. If you’re considering filing for bankruptcy in Marshall, MN, contact Behm Law Group, Ltd. at (507) 387-7200 for more information about working with our quality bankruptcy attorneys.