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The “DO’s” and “DON’T’s” of Debt Settlement

Couple stressed out and holding up a help sign

When it comes to debt settlement, there are universal “DO’s” and “DON’Ts” that apply to almost any debt situation. Debt settlement can be a powerful tool for recovering financially if you have the resources to make debt settlement offers. However, if you settle your debts without knowing these few important things, your settlement efforts may create unforeseen problems.


Arguably, the most important “Do” of Debt settlement is to document your settlement agreement. If you pay the creditor a lump sum to settle without documentation, it is possible that the creditors or a collection company could improperly attempt to collect on the rest of the debt in the future. Make sure to fully document the settlement as much as possible through a signed document by the creditor or some form of actual signed release. At a minimum, be sure to have a clear written expression of the settlement agreement. In addition, it is good to write on the bottom of the check and back of the check that the tendered payment is for full settlement and satisfaction of the debt. Such documentation paper trail could protect you in the future if your creditor mistakenly attempts to collect on the same debt in the future.


When settling certain forms of debt, you can be liable for income tax on the forgiven portion of the debt. When counting the total cost of settlement for your debt, it is very important to factor in the possibility that taxes may be owed on the forgiven portion. If you do not factor this in to your settlement plans, your financial situation may become worse: you could acquire large, difficult to settle tax debt that cannot be discharged very easily in bankruptcy.

DO NOT EXHAUST YOUR ASSETS OR 401K’s: Know When It’s Better to File Bankruptcy

A huge “DON’T” when settling your debts is to exhaust all your resources. You do not want to exhaust all your resources and then still have debts that are unsettled. It can be dangerous to deplete large portions of your 401(k) or other savings when you settle your debts. If you cannot settle your debts in entirety with money to spare, it may be advisable to seek out bankruptcy options. If it is impossible to feasibly settle all your debts without depleting your 401(k), bankruptcy could be a much safer option for your financial future.

Seek professional advice

Professional advice of an attorney or other financial professional is usually affordable or free. It is very important to make a sound plan for settling your debts and a local attorney may be able to greatly assist you in the process. A local attorney may charge only $500-$2000 for settling your debts. It may be worth the extra money you pay in order to have less personal work and the peace of mind that your debts are within the hands of a professional. Remember, a local, trustworthy attorney or professional is generally a safer “bet” than a larger company or out-of-state operation.


Remember, debt settlement can be a powerful solution to seemingly impossible situations. Remember that debt settlement is only the best option for certain situations where assets or cash is sufficiently available to make solid settlement offers. It is important to make sure that all options are considered before commencing attempts to settle your debts.

~John F. Bymaster, Indianapolis Bankruptcy Attorney

You Included My House and Car in the Bankruptcy?


What Do You Mean? You Included My House and Car in the Bankruptcy?  Our clients frequently request that we do not include their house or car in their Indianapolis Chapter 7 bankruptcy. You can usually keep your house and cars when you file for Chapter 7 Bankruptcy in Indianapolis. However, the bankruptcy system requires that everything that you own or anybody that you owe money to be included and listed your Indianapolis bankruptcy filing.

Why You Must Include Your House and Cars in Your Indianapolis Chapter 7 Bankruptcy

You must include your house and cars in your Indianapolis bankruptcy because the court must have an accurate picture of everything that you own. The Indianapolis Bankruptcy Court must be able to determine whether you have any non-exempt assets. Although almost all of our clients are able to keep their house and cars as long as they keep making the payments, the court must have full access to your financial information.

Including Your House or Car in Your Indianapolis Chapter 7 Bankruptcy Does Not Mean That You Will Lose Your House or Car During the Bankruptcy

Our office has “included” our clients house and cars in hundreds of Indianapolis Chapter 7 bankruptcy filings. In these cases are clients were able to keep their house and cars if they were able to continue making the payments. Therefore, perhaps a redefining of times is all that is in order. Instead of “not including your house and cars,” perhaps including the house and cars with the intent to retain them is a more accurate picture of the bankruptcy process.

Conclusion: You Must Disclose All of Your Property and Debts When You File Bankruptcy

Just because you must disclose all of your property and debts when you file for a Chapter 7 bankruptcy in Indianapolis, it does not necessarily mean that you will lose any of your property. In almost all of our cases, the Bankruptcy Trustee will allow our clients to keep their property because it is protected by Indiana’s bankruptcy exemptions.

1099 and Bankruptcy – Indiana

The 1099 and Bankruptcy – Indiana Questions

Indiana bankruptcy attorney, John Bymaster, discusses 1099s and bankruptcy.  This time of year some of our Indiana bankruptcy clients received 1099s in the mail and they call our office because they are not sure what to do.  This bankruptcy informational video will provide you with information on how to move forward with your taxes after filing bankruptcy.

A lot of clients are worried when they receive a 1099 in the mail after bankruptcy, because they think they have to pay some kind of tax on the debt that was discharged in bankruptcy.  This is a common misconception.  When you receive a 1099 in the mail after you file bankruptcy, you do not have to pay tax on the debt that was discharged.

There are a couple rare circumstances where someone would have to pay taxes.  The first circumstance would be if you took a depreciation schedule on a property that you later discharged in bankruptcy, then it may result in a situation where you have to pay some of those depreciation taxes back.  The second circumstance is if you settled a debt before you file bankruptcy and then you file bankruptcy later, it is possible that you  may have to pay taxes on that.

If you have further questions on 1099 and bankruptcy, we always advise that you talk to a certified public accountant.  You can also contact an Indianapolis bankruptcy attorney about 1099’s and bankruptcy.

-Indiana Bankruptcy Attorney John F. Bymaster