What are the risks of choosing to settle a debt?

When someone chooses to settle a debt, there are a number of risks they should be aware of. The most obvious risk is getting into further financial difficulty due to paying the settlement. Once a settlement has been reached, it is important to continue making payments to the creditor or debt collector as promised in the agreement. If not, the creditor or collection agency may take legal action. Another risk of settling a debt is the Negative Impact on Credit Score. Settling a debt can have a major impact on someone’s credit score. If a settlement is listed on the credit report, it can remain there for seven years, and can significantly lower the credit score. A third risk of debt settlement is the risk of called a “1099-C Cancellation of Debt”. This is essentially a form that the creditor or collection agency fills out for the IRS stating that the debt has been settled. However, the IRS may consider the forgiven debt to be taxable income. This means that even after the debt has been satisfied, the taxpayer may still owe money to the IRS. Finally, the last risk of debt settlement is the risk of getting sued. Creditors and debt collectors may still be able to sue a person even if a settlement has been reached. Therefore, it is important for anyone considering debt settlement to consult a knowledgeable attorney in West Virginia to ensure that they understand the risks and protect their legal rights.

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What are the risks of choosing to settle a debt?

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