What Is the 63/10 Debt Settlement Method?
Explore the 63/10 debt settlement concept, an online theory, and understand the complete financial picture beyond its promised low settlement.
The 63/10 debt settlement method is an informal strategy discussed online for dealing with unmanageable debt. It is not a recognized program offered by financial institutions or government bodies. This approach is a high-risk, self-directed theory that operates outside of formal financial agreements, and its name is derived from the specific steps it proposes.
The Theory Behind the 63/10 Method
The “6” signifies a period of six months during which an individual intentionally stops making payments on an unsecured debt, such as a credit card. The goal is to have the original creditor “charge off” the account, an accounting measure where the creditor writes the debt off as a loss.
Following the charge-off, the debt is often sold to a third-party debt collection agency. The “3” and “10” components suggest engaging in up to three rounds of negotiation with the new debt owner. The objective is to reach a settlement to pay 10% of the original amount owed in a lump sum to resolve the account.
Financial and Legal Consequences
The initial six months of missed payments will be reported to credit bureaus, causing significant damage to a person’s credit score. A charge-off is a negative event on a credit report and can remain there for up to seven years, making it difficult to obtain new credit, secure housing, or even find employment. The account status would likely be updated to “Charged-Off Settled,” which is viewed less favorably than an account marked “Paid in Full.”
There is no guarantee that a creditor or collection agency will agree to settle. Instead of negotiating, the creditor or subsequent debt buyer has the legal right to file a lawsuit to recover the full amount of the debt. If they win the lawsuit, they can obtain a court judgment, which may allow them to garnish wages or seize assets, adding legal fees and interest to the original balance.
If a settlement is successfully negotiated, there are tax implications. When a creditor forgives a portion of a debt, the Internal Revenue Service (IRS) treats the canceled amount as taxable income. The creditor is required to issue a Form 1099-C, Cancellation of Debt, for forgiven amounts of $600 or more. The individual must then report this amount on their tax return and pay income taxes on it.