Credit counseling companies

[Lasardo]

My bf is getting bombarded with companies that claim to reduce your debt which is 30k to 12k for $400/mnth.
They claim they will do the negotiations but what happens to the difference that was never paid.
For example:
Owe: 1k
Pay:$600
Is $400 charged off on ur cr?

[Imperfectfuture]

Don't use them, they will ruin your credit. They settle by defaulting on the cards. And they charge you for it.

Debt Management, such as nfcc, is an alternative. But if you can, just keep doing what you are doing, paying down the debt. Belt tighten the budget, maybe get some extra hours, second job for money, lots of folks work job b on weekends. If it's important to you to have a secure future, take the hard knocks now. We've all been through it.

[RobertEG]

No, the difference is not charged-off.

A CO is an internal accounting measure taken by a business that moves a debt that has become uncolletible over from the accounts receivable (asset) portion of their accounting ledger to a non-receibale bad debt.  That reduces theri tax obligation in their next tax return.  It does not excuse a penny of the debt, which remains fully owed and collectible.

A settled debt is one where the owner agrees to accept less that the full amount of the current debt as satisfaction of the debt.  The debt thus becomes paid.

The difference between the total debt and the settlemenet amount is cancelled by the owner, and then becomes "income" to the consumer under the IRS code.

If that amount is $600 or more, the consumer, in most cases, must pay taxed on that cancelled debt as income.

[Lasardo]

So basically I can call, myself, and offer a settlement amount and if they take it or agree to settle I have to claim the difference (if over $600) on my taxes, right?

[Anonymous]

If they send you a 1099-C for the difference, yes. But there are exceptions. Any time a 1099-C is received in relation to forgiven/settled debts you should consult a tax expert to find out if you are exempt from it.