Discharge Credit Card Debt in Florida

Florida consumers with excessive credit card debt should be cautious about so-called "debt consolidation" and "credit counseling" services that promise to settle your debt for pennies on the dollar. While some of these services were a good deal for consumers at one time, today many are little more than scams. Many are operated by firms that aren't even located in Florida.

I'm Joel Gross, a bankruptcy lawyer in Clermont, Florida. Before I started my bankruptcy law practice, I worked for a law firm that provided credit counseling and debt consolidation services in Tampa. At the time, credit card companies were willing to cooperate with debtors, usually reducing the interest rate of outstanding credit card balances to 2 percent or less. Credit card companies also showed the debtor as current as long as they made payments. Today, many of these programs work differently.

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How Some Credit Counseling and Debt Consolidation Programs Work

Today, many credit counseling firms will ask you to make monthly payments to them before they even begin to negotiate with your credit card company. The credit counseling firm will keep your money in an escrow account until they have a certain percent of what you owe. Then, they will attempt to negotiate with your credit card company.

However, you may continue to incur late fees and interest while the credit counseling firm is holding your money. In many cases the credit card company will sue you long before the credit counseling company attempts to negotiate your debt.

Even if the credit card company doesn't sue you, they are not likely to reduce interest rates by any significant amount. In addition, any debt that the credit card company cancels will be treated as taxable income by the IRS. The credit card company will send you a 1099 at the end of the year for the amount of cancelled debt.

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Only Bankruptcy Discharges Debt With No Tax Consequences

Only bankruptcy can discharge credit card debt while protecting you from garnishments, home liens and creditor harassment. In addition, bankruptcy is not a taxable event. You will owe no income taxes for the amount of debt that is discharged.

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