Question

Describe the effect of relief of debt

Answer 1

Answer:

Debt relief or debt cancellation is the partial or total forgiveness of debt, or the slowing or stopping of debt growth, owed by individuals, corporations, or nations.   

Creditors don't typically settle debts unless they're a few months past due. That means you have to stop paying your accounts and allow them to become past due.

Meanwhile, your late payments get reported to the credit bureaus, your credit score drops, and you might begin receiving collection calls. Regardless of the debt settlement action, those late payments remain on your credit history for up to seven years. Until you start accumulating positive credit activity, you'll have difficulty getting new credit cards and loans. You may even find your credit score interfering with getting a job or a good insurance rate.

After debt settlement, it may take a few months or even a few years to rebuild your credit and get approved for unsecured credit. You could also owe taxes on settled debts. The Internal Revenue Service (IRS) treats forgiven debts as income and expects you to pay income taxes on the forgiven amount.

Creditors are supposed to send you a Form 1099-C for reporting canceled debts, but the IRS expects you to include the debt on your tax return even if you don't receive the form