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Negotiate A Debt ReductionYou have tried all the suggestions, read all the savings articles and tips, used up your savings and still you aren't able to make ends meet. Before you move onto the last resort, there is one more piece of leverage you can use to negotiate with. That leverage is the threat of declaring bankruptcy.
If you are truly in dire straights with no way to pay back all your debt, tell your creditors exactly where you stand. Explain that if the current terms can't be renegotiated, the only option you will have left is to file for bankruptcy. Don't expect them to simply take your word for it. You will need to provide proof that you really are in the financial trouble you claim. If you are able to do this, they will more than likely be willing to sit down and try to work something out. Why? Because if you do file for bankruptcy, the chances of them getting anything is quite slim, and a little is better than nothing. If you don't want to do the actual negotiating yourself, there are a number of companies that will do the negotiations for you.
In doing this, keep in mind that if creditors do agree to write off some of your debt, there could be tax implications for you. The IRS requires financial institutions that forgive $600 or more of a debt's principal to send you and the IRS a Form 1099-C and you must report this as income. The exceptions to this are if you discharge the debt in bankruptcy, or you were insolvent before the creditor agrees to settle or write off the debt. Insolvent usuallly means that your debts exceed the value of your assets. To figure out whether or not you are insolvent, you have to total up your assets and your debts, including the debt that was forgiven. If you have enormous debts, then it's advisable to talk with an accountant familiar with tax law that can calculate what, if any, tax implications will come from renegotiating your debt.
If your debts are so dire that you don't see even this line of action resolving your debt issues, then it's time to consider the last resort...
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