What is the Difference Between Debt Settlement and Forgiveness?
Many Georgia residents are currently struggling with debt, even as they continue to add more debt to the balance they owe. According to a recent study reported in Valdosta Today, Georgia is among the top states where consumers are adding the most debt to the balances that are already due. That report indicates that Georgia residents are taking on notable amounts of credit card, personal loan, and auto loan debt. Many Georgia residents are taking on this additional debt when they are struggling to make even the minimum payments each month on the debt they already owe. For debtors who are struggling with debt, it is important to understand available options for debt relief.
If you have started to look into debt relief options, you may have come across information about both debt settlement and debt forgiveness. What is the difference between debt settlement and debt forgiveness, and how are these forms of relief related to one another? Our Georgia debt settlement lawyers can tell you more.
Debt Settlement Involves Forgiving Some Debt
Debt settlement and debt forgiveness are two separate things. Debt settlement refers to a process of negotiating an agreement with a creditor for the creditor to “settle” the debt for an agreed-upon amount that is less than the total amount that the debtor owes. In a debt settlement agreement, the debtor pays the agreed-upon amount so that the debt will be “settled.” Debt forgiveness in itself does not involve paying any of the debt. Rather, debt forgiveness refers to a situation in which debt is forgiven or canceled, and the debtor does not owe anything.
While debt settlement and debt forgiveness are separate, it is essential to understand that debt forgiveness is part of a debt settlement agreement. When a creditor agrees to “settle” a debt for an amount less than the total of what the debtor owes, the remaining amount (the amount the debtor does not pay) is forgiven. To be clear, part of the settlement agreement involves forgiving the amount of debt that goes unpaid — the amount that is not included in the agreed-upon payment amount.
Amount of Forgiven Debt in a Debt Settlement is Taxable
You should be aware that any amount of debt you pay (the agreed-upon amount) is not taxable. However, the amount of debt that is forgiven is taxable. What does that mean?
When it is time to do your taxes, you will owe tax on the amount that was forgiven. The forgiven amount will be taxed as if it were income. Accordingly, you should plan to pay taxes on your forgiven debt.
Contact a Georgia Debt Settlement Attorney
If you are behind on credit card payments or other debts, it may be possible to reach a debt settlement agreement with the creditor or creditors. As we explained above, with a debt settlement agreement, one of the major benefits is that you can have a portion of your debt forgiven. To find out more about your options for debt settlement or to clarify any questions or concerns you have, it is important to seek legal advice. An experienced Lilburn debt settlement lawyer at Konn Law Firm LLC can discuss your financial circumstances with you today and can help you to move forward with debt settlement negotiations. Contact us for more information about how we can assist you.
Sources:
valdostatoday.com/in-other-news/2025/02/georgia-ranks-in-top-10-states-where-consumer-are-adding-most-debt/#:~:text=Credit%20card%20debt%3A%20The%20average,Q4%202024%2C%20and%20reached%20%2428%2C377
irs.gov/taxtopics/tc431
