Frequently Asked Questions

No. There is no federal or state government program that forgives credit card debt. Companies advertising "government forgiveness programs" are selling debt settlement services. The only government mechanism for eliminating credit card debt is bankruptcy -- a federal court process, not a program you sign up for through a private company.

Forgiveness is a marketing term, not a legal concept. Settlement means a creditor agrees to accept less than you owe -- the forgiven amount is usually taxable. Discharge is a court order in bankruptcy that permanently eliminates the debt -- not taxable. Read the full comparison.

Yes. You can call your credit card company directly and ask for a hardship program, reduced interest rate, or settlement offer. You do not need a company to do this for you. Many creditors prefer working directly with cardholders. Call the number on the back of your card and ask for the hardship or financial assistance department.

Debt consolidation is a new loan that pays off multiple debts, leaving you with one payment at a (hopefully) lower interest rate. You still owe the full amount. Debt settlement is negotiating with creditors to accept less than you owe. These are completely different approaches, though some companies use the terms interchangeably in their marketing.

Settlement amounts vary widely, but typical settlements range from 40% to 60% of the outstanding balance. Some creditors will accept less if the account is severely delinquent (180+ days). The amount depends on the creditor, the age of the debt, your financial situation, and whether you can pay in a lump sum.

Yes. Settled accounts appear on your credit report as "settled for less than full balance" for 7 years. Accounts must typically be delinquent before creditors will negotiate, and those delinquencies also damage your credit. However, if you are already behind on payments, your credit is already being damaged.

Yes. Settlement companies cannot stop lawsuits. Only the automatic stay in bankruptcy can halt a pending or threatened lawsuit. If you are at risk of being sued, this is an important factor in choosing between settlement and bankruptcy.

Usually, yes. Forgiven debt over $600 is reported on a 1099-C and is taxable income. The insolvency exception may reduce or eliminate this tax if your liabilities exceed your assets. Debt discharged in bankruptcy is never taxable.

Yes. Credit card debt is general unsecured debt and is fully dischargeable in both Chapter 7 and Chapter 13 bankruptcy. In Chapter 7, the debt is eliminated in approximately 3-4 months. In Chapter 13, you pay what you can afford over 3-5 years, and any remaining balance is discharged.

Yes. You must list all debts and all creditors in your bankruptcy schedules. You cannot selectively include some credit cards and exclude others. However, you can voluntarily continue paying any creditor after the discharge if you choose to maintain a relationship with a particular lender.

Yes, all existing credit cards will be cancelled. However, you can typically obtain a secured credit card shortly after discharge. Many people receive unsecured credit card offers within 12-18 months, though at higher interest rates initially.

You should not. Under 11 U.S.C. Section 523(a)(2)(C), luxury purchases over $800 within 90 days and cash advances over $1,100 within 70 days are presumed nondischargeable. Stop using credit cards as soon as you decide to file. Learn more about nondischargeable debts.

Look for an attorney who focuses on consumer bankruptcy. Get at least 2-3 free consultations. Ask about their experience, fees, what is included, and how they communicate. Check reviews and bar association records. Ask whether they will personally handle your case or delegate to staff. See also: prosedebtors.org for pro se resources.

Legally, yes (this is called filing "pro se"). However, bankruptcy law is complex, and mistakes can result in losing property, having your case dismissed, or losing your discharge. Chapter 7 is somewhat simpler; Chapter 13 is extremely difficult without legal help. If cost is a concern, look for legal aid organizations or attorneys who offer payment plans. See prosedebtors.org.

No. The Bankruptcy Code does not set a minimum. However, filing costs ($338 filing fee plus attorney fees) make it most cost-effective when total debt exceeds approximately $10,000-$15,000. See our debt-level analysis.

Form 1099-C (Cancellation of Debt) is an IRS form that creditors must file when they cancel $600 or more of debt. It reports the cancelled amount as income. You must include this amount on your tax return unless an exclusion applies (insolvency or bankruptcy). Full guide to 1099-C.

Under IRC Section 108(a)(1)(B), if your total liabilities exceed your total assets at the time debt is cancelled, you can exclude the cancelled amount from income up to the amount of your insolvency. You must file IRS Form 982. Full explanation with examples.

No. Under IRC Section 108(a)(1)(A), debt discharged in bankruptcy is excluded from gross income. This applies to both Chapter 7 and Chapter 13 discharges. No 1099-C is required, and if you receive one, you file Form 982 checking Box 1a to exclude it.