In my previous blog posts I told you a few reasons why I’m not a fan of debt settlement agencies. Today I’ve got another reason to share with you that involves taxes!
Taxes are a hassle without having to worry about any additional roadblocks in the process. Unfortunately, using a debt settlement agency is a major roadblock during tax time! The amount of debt you still owe your creditors, whether it has been lowered by a debt settlement agency or not, still counts as taxable income.
So not only are you still in debt, you have to pay taxes on your debt as well! The trouble doesn’t stop there, however. You may also be moved to a higher tax bracket due to your taxable debt. This means that you’d be paying a higher percentage of taxes on your entire income! Not to mention the back taxes that are sure to follow!
One way to avoid this complex mess is to file bankruptcy. You can qualify to discharge your debt, so the amount of debt you owe doesn’t count as taxable income. In other words, you don’t have to pay taxes on money that you don’t actually have!