months or more of late student loan payments will result in a credit score drop of 100 points, if not more. “Student loans can only rarely be written off in bankruptcy,” she adds, “but they can be [paid off and then] eliminated via loan forgiveness programs, service-based work, or if you become disabled.”
There are two things you’re guaranteed to face in life, the old saying goes: death and taxes. There isn’t much you can do about the Grim Reaper, but like most debts, a bill with the Internal Revenue Service can be negotiated.
Make a request. You can request an installment agreement using Form 9465 for a fee of $105, or $52 if using electronic funds withdrawal, or $43 if you meet certain income requirements. Even if the IRS doesn’t determine that you’re eligible for the lower fee, you can still request it using Form 13844. You’re guaranteed an installment agreement if you owe $10,000 or less, you’ve filed all returns on time for the past five years, and you agree to pay off the amount owed within three years, says Jean Wells, a certified public accountant, lawyer, and assistant professor at Howard University School of Business. If you owe between $10,000 and $25,000, you’ve filed all returns on time in the last five years, and you agree to pay off what you owe within five years, you can get a streamlined (meaning a financial statement isn’t required) installment agreement, but it isn’t guaranteed. Be aware that any installment plan will include hefty penalty and interest charges that will add substantially to what you already owe.
Make an offer. If you can’t pay the entire bill, even over time, you still have options. You can make an offer in compromise using Form 656, which like an installment agreement will require that you pay a fee ($150) for the privilege. “Without some extraordinary circumstance, an offer will not be accepted if the IRS believes that the liability can be paid in a lump sum or in installments,” warns Wells. You may need to send financial records in order for the IRS to determine if you can pay less than you owe. When dealing with Uncle Sam, it’s smart to have backup like a CPA, lawyer, or enrolled agent. An offer in compromise doesn’t have to be submitted by a tax professional, but it’s probably wise to consult one.
Know your rights. If there’s an exceptional circumstance and you can prove to the IRS that collecting the tax would create an economic hardship or would be unfair and inequitable (for example, you have a sick child that requires expensive and prolonged medical care and providing that care is what you spend most of your money on), you might have your back taxes forgiven. You can also request an abatement of interest and penalties in certain circumstances by submitting Form 843.
Debt isn’t created overnight, and it won’t disappear quickly. Acknowledge the problem, find solutions, and implement them. A thoughtful, step-by-step debt management plan can put you back in the black, and disciplined habits will keep you there.