Tax Issues With Debt Settlement

If you are thinking about debt settlement the thing to watch out for is that you will owe taxes for the amount of debt that was forgiven as part of your settlement. An example of this is if you owe $20,000 on a credit card and they agree to settle with you for $10,000 you will owe taxes on the $10,000 that was forgiven. This means that when you are settling debt you need to budget for the eventual tax bill. This does not mean that debt settlement is not a good option in some cases, it simply means that you must be prepared for the eventual tax bill. This should be explained to every person before they embark on debt settlement. In fact Minnesota law requires this to be disclosed to potential clients before debt settlement can begin.