When you're struggling with debts you can't repay, both Chapter 13 bankruptcy and debt consolidation loans may be viable options for reclaiming your financial life. However, there are a wide variety of factors you should consider when choosing between the two, not the least of which are the tax implications. According to Dothan-based bankruptcy attorney Rafael Gil III of The Gil Law Firm, there are some important differences that might have major consequences for your financial future.
Many borrowers initially consider debt consolidation to be a more attractive option because almost all debts can be paid off by the new loan, which may also look better on a credit report. However, the IRS requires credit card and other debt companies to report any forgiven debt, which the government considers as income. When the time comes to file your tax returns, you may find yourself liable for thousands of dollars of taxes on your settled debts.
Chapter 13 Bankruptcy
The law protects you from paying taxes on debts that are forgiven through bankruptcy, even if all of your unsecured debt is completely discharged. In addition to eliminating much of your debt, a Chapter 13 also allows you to catch up on secured debts without exposing yourself to additional tax liabilities. In fact, a Chapter 13 bankruptcy can also include past-due tax amounts, which debt consolidation may not allow.
Since 2000, Rafael Gil III of The Gil Law Firm has helped Dothan-area families navigate the most difficult legal and financial situations, providing creative solutions tailored to your unique situation. Drawing upon his extensive legal expertise, this experienced attorney offers services in a broad array of practice areas, from Social Security to personal injury cases. Visit the website to learn more, or just call (334) 673-0100 to schedule a consultation today.