Will the Creditor Forgive My Credit Card Debt? (2024)

Most credit card companies are unlikely to forgive all your credit card debt. But they occasionally accept a smaller amount to settle the balance due and forgive the rest. Or the credit card company might write off your debt. But this step doesn't eliminate the debt—it's often sold to a collector.

You can also wipe out your credit card debt by filing for bankruptcy. However, bankruptcy is not the same as debt forgiveness.

Offering a Settlement to Your Credit Card Company

If you're delinquent on your payments and offer a lesser amount to settle the entire debt, the credit card company might accept it. Taking a settlement is sometimes less risky than suing. Suing costs money, and the creditor might know it has little chance of collecting the entire balance through traditional methods like garnishment.

If the creditor agrees to settle the debt, it will accept your settlement payment and forgive the remaining balance.

Example. Jenna owes $12,000 on her credit card. She knows it will take her a long time to repay the total amount plus interest because she lost her job and can't find a new one. She has $7,000 in her bank account and offers it to the credit card company in exchange for wiping out the debt. The credit card company agrees to the settlement. Jenna pays $7,000, and in return, the credit card company forgives the remaining $5,000 balance and considers the debt satisfied.

If you settle your debt for less than you owe, the amount of the canceled debt might be taxable. Settling debts for less than you owe can increase your tax liability depending on your tax bracket and the canceled amount.

The Credit Card Company Writes Off the Debt

If you stop paying on your credit card debt and become seriously delinquent, the credit card company will likely write off the debt and consider it uncollectible. At that point, the company takes your debt off its books.

However, this write-off offers no benefit to you because a write-off is not debt forgiveness. The credit card company registers the debt as a loss—but the debt still exists.

The Credit Card Company Might Sell Your Debt

A debt owed to the credit card company is an asset of the credit card company, like any other asset. The creditor can sell the debt to a third party (such as a collection agency), which can then collect the debt from you. The third-party debt collector can file a lawsuit to collect the debt.

What Happens After a Credit Card Lawsuit

Once the collector receives a judgment against you, it can use the judgment to garnish (take) money out of your paycheck or your bank account. If you end up in this situation, remember that certain types of income are exempt from garnishment, like Supplemental Security Income (SSI), and certain types of property are protected from collection. Also, the judgment is meaningless if the creditor can't get your income or property (that is, you're "judgment proof.")

The collector can also put the lien on your home and foreclose to get paid. However, while judgment lienholders generally have the right to foreclose, they usually don't. Instead, the lienor will probably just be patient and wait until you sell the property or refinance while interest accrues on the debt.

Bankruptcy Discharge of Credit Card Debt

If you file for bankruptcy and get a discharge from the bankruptcy court, your credit card debt will likely be wiped out entirely. However, this elimination isn't debt forgiveness. The creditor has little choice, and the debt still exists.

The discharge eliminates only your obligation to repay it, which might matter if you have a cosigner or a co-borrower and that person doesn't file for bankruptcy. That person will still be responsible for the debt.

Consequences of Debt Forgiveness, Write-Offs, and Bankruptcy

Here are the main consequences of any of these possibilities:

• If the creditor writes off the debt as uncollectible, the consequences include a blemish on your credit reports for the delinquent payments as well as the write-off.
• Additionally, the creditor will likely sell the debt to a collector, who will aggressively pursue you for the money and might sue you.
• If the creditor settles the debt with you, it will note on your credit report that the debt was settled for a lesser amount. This notation can have a negative impact on your credit.
• Again, the IRS and your state government might be considered taxable income, and you could have to pay taxes on it.
• If you file bankruptcy, your credit reports will reflect the bankruptcy for seven to ten years, depending on the kind of bankruptcy filed. However, debts wiped out in bankruptcy are not considered taxable income.

Getting Help

If you need help managing your credit card debt, talk to a nonprofit agency that provides free or low-cost services, like those affiliated with the National Foundation for Credit Counseling (NFCC). Be sure to avoid debt settlement companies and learn the pros and cons of your options, such as debt management plans.

Consider hiring an attorney if you need help negotiating with creditors.