How to Write Off Debt in the US (Your Legal Options in 2026)

How to Write Off Debt in the US: Your Legal Options (2026)

Last updated: August 2026  |  Reading time: 9 minutes  |  By Hamid Ali, MSc Accounting & Finance, Founder of DebtShift

You’ve done the maths. The numbers don’t work. Every month you make minimum payments and the balances barely move — or they go up. Someone mentioned writing off debt as if it’s a thing, and you’re not sure if that’s real or just something people say.

It’s real. Writing off debt is a legal process in the United States. Federal bankruptcy law exists specifically for this situation. So do debt settlement and nonprofit debt management plans. None of them are free. All of them have consequences. But for people whose debt is genuinely unmanageable, these routes can provide a real way out.

Here’s what each option actually means, who it’s right for, and what it costs you long term. For every other debt payoff strategy available, visit our debt payoff hub.

What “writing off debt” actually means in the US

It means having some or all of your unsecured debt legally cancelled through a process recognised by federal or state law. Unsecured debt — credit cards, medical bills, personal loans — can be discharged or settled for less than you owe. Secured debt like a mortgage or car loan is different; the lender holds the asset as collateral, which changes what’s possible.

Writing off debt is not a loophole. It’s not a scam. The US Bankruptcy Code exists in federal law precisely because society recognises that people sometimes end up in debt they genuinely cannot repay. The question is which route makes sense for your specific situation — because each one comes with real trade-offs.

Your four legal options

Option 1 — Chapter 7 Bankruptcy

The fastest formal route. Chapter 7 discharges most unsecured debts — credit cards, medical bills, personal loans — completely. You don’t repay them. They’re gone. Most Chapter 7 cases run 4–6 months from filing to discharge, and simple “no-asset” cases can be discharged in as little as 90 days. The moment you file, an automatic stay kicks in and all collection calls must stop immediately.

To qualify, you must pass a means test. The test compares your average income over the six months before filing to your state’s median income for a household your size. If you’re below the median, you pass automatically. If you’re above it, the court looks at your actual expenses to assess disposable income.

What it costs: The federal court filing fee, set under 28 U.S.C. § 1930, is $338. Attorney fees typically run $1,000–$3,500. You also need a credit counseling course before filing ($15–$50) and a debtor education course after ($35–$50). If your income is below 150% of the federal poverty line, the filing fee can be waived entirely.

The real cost: Chapter 7 stays on your credit report for 10 years from the filing date. You may lose non-exempt assets — though most states protect basics like clothing, household goods, and a vehicle up to a certain value. Student loans and recent tax debts are generally not dischargeable.

Right for you if: You have significant unsecured debt, low or moderate income, and few assets. The means test will confirm eligibility — most bankruptcy attorneys offer a free initial consultation.

Option 2 — Chapter 13 Bankruptcy

Chapter 13 lets you keep your home and car while repaying a portion of what you owe over three to five years through a court-approved plan. Whatever qualifying debt remains at the end of the plan is discharged. The key difference from Chapter 7 is that you’re reorganising, not liquidating.

This is the route if you earn too much to pass the Chapter 7 means test, or if you want to stop a foreclosure. Chapter 13 gives you the legal mechanism to catch up on mortgage arrears over time while keeping the house.

What it costs: The court filing fee is $313. Attorney fees typically run $2,500–$6,000 — more than Chapter 7 because the plan requires active management over years. The complexity is higher and so is the cost.

The real cost: Chapter 13 is commonly reported for seven years — that’s standard bureau practice, not a fixed legal ceiling, since the FCRA technically permits reporting for up to 10. It also requires strict budget discipline for the entire repayment period — missing payments can get the case dismissed. You cannot take on new debt without court permission while the plan is active.

Right for you if: You have regular income, want to keep significant assets, or need to stop foreclosure proceedings on your home.

Option 3 — Debt Settlement

You negotiate with creditors — directly or through a settlement company — to accept a lump sum payment for less than the full balance. Creditors will often take 40–60 cents on the dollar rather than risk getting nothing. Settlement works best when accounts are already delinquent and creditors are motivated to recover something rather than write it off entirely.

You can do this yourself. Call the creditor, explain your financial situation, and make an offer. Get any agreement in writing before you pay a single dollar. Settlement companies are not necessary — and they charge 15–25% of enrolled debt for the service.

The tax problem most people miss: When a creditor forgives $600 or more of debt, they’re required to send you a Form 1099-C and the IRS generally treats that forgiven amount as taxable income. But if you were insolvent immediately before the discharge — your total debts exceeded the fair market value of your total assets — you may exclude the forgiven amount from income using IRS Form 982, up to the amount by which you were insolvent. That cap matters: if $10,000 is forgiven but you were only insolvent by $6,000, the exclusion covers $6,000 and the remaining $4,000 is still taxable — it’s not an all-or-nothing exclusion.

The real cost: Settled accounts are reported negatively on your credit file. The potential tax bill on the portion of forgiven debt that doesn’t qualify for exclusion. And if you use a settlement company, their fees can eat a significant portion of what you saved.

Right for you if: You have a lump sum available — from savings, a gift, or an asset sale — and can’t repay the full balance. Also viable if you’re not eligible for bankruptcy or want to avoid it.

Option 4 — Debt Management Plan (DMP)

A nonprofit credit counselling agency negotiates reduced interest rates with your creditors. You make one monthly payment to the agency, which distributes it to your creditors. This does not write off your debt — you repay it in full — but dramatically reduced interest rates (sometimes from 24% down to 6–8%) mean more of every payment attacks the balance itself.

Most DMPs run three to five years. It’s not writing off debt in the strict sense, but for people who can afford to repay with lower rates it’s often the cleanest route — no court involvement, no credit report hit beyond what you’ve already taken, no tax implications.

What it costs: A small monthly fee — typically $25–$50. NFCC member agencies at nfcc.org provide free or low-cost nonprofit credit counselling with no sales pressure.

The real cost: You cannot use credit cards while on the plan. Takes three to five years. No legal protection from creditor lawsuits, unlike bankruptcy.

Right for you if: Your debt is manageable if interest rates were lower. You have steady income and want to repay without formal insolvency.

Which option is right for your situation

Low income, few assets, debt you cannot repay: Chapter 7 is likely your route. Fast, clean, and a genuine fresh start. A free bankruptcy attorney consultation takes 20 minutes and will tell you whether you pass the means test.

Regular income, want to keep your home or car: Chapter 13 lets you restructure while keeping assets and catching up on arrears. More complex and expensive than Chapter 7 — but the right tool if foreclosure is on the table.

You have a lump sum available: Debt settlement can clear accounts for significantly less than you owe. Do it yourself if you can — creditors negotiate directly with debtors all the time. Get everything in writing before paying.

Debt is manageable with lower interest rates: A nonprofit DMP through NFCC may be all you need. No court, no formal insolvency, no lasting credit damage beyond what’s already there. Also run our Minimum Payment Trap Calculator to see exactly how much your current interest rates are costing you each month.

One rule applies to all four routes: get free advice before committing to anything formal. NFCC at nfcc.org offers nonprofit credit counselling with no sales pitch. Many bankruptcy attorneys offer free consultations. Never pay upfront fees to anyone who claims they can write off your debt — that’s a red flag every time.

A note on student loans: it’s gotten a little more possible, not easy

Student loans still survive bankruptcy in almost all cases — that hasn’t changed. What has shifted is the process for the exception. Discharging a student loan requires proving “undue hardship” through a separate adversary proceeding inside your bankruptcy case, historically one of the hardest bars in consumer law to clear. In November 2022, the Department of Justice and Department of Education issued joint guidance — still in effect through 2026 — that streamlined how these cases get reviewed and made government attorneys less likely to oppose a discharge request when a borrower genuinely can’t pay and that isn’t likely to change. It’s a real shift, and courts in several circuits are applying the standard more flexibly as a result. But it’s still not automatic, still requires filing a separate legal action, and remains the exception rather than the rule. If long-term student loan hardship is part of your situation, this is worth raising directly with a bankruptcy attorney rather than assuming it’s off the table.

What happens to your credit after writing off debt

This is where people often make the wrong comparison. They look at the bankruptcy notation on a credit report and assume it’s worse than the alternative. Often it isn’t.

If you’re already seriously delinquent on multiple accounts, your credit score has taken most of the damage it’s going to take. The late payments, the charge-offs, the collection accounts — those are already dragging your score down hard. Bankruptcy consolidates the damage into a single formal notation and gives you a clean slate to rebuild from.

Many people start rebuilding credit within one to two years of a Chapter 7 discharge using secured credit cards and responsible use. The 10-year notation is on the report — but lenders weight recent behaviour heavily, and recent behaviour can be positive. See what actually happens to your credit score after clearing debt and what a good credit score in the US looks like once you’re rebuilding.

Questions people actually ask about writing off debt

Can you legally write off debt in the US?

Yes. Writing off debt through bankruptcy is a federal legal process established in the US Bankruptcy Code. Debt settlement is a legal process too. Both are legitimate routes — not loopholes, not workarounds. Always get free advice from NFCC at nfcc.org before making any formal decision.

How long does bankruptcy stay on your credit report?

Chapter 7 stays for 10 years from the filing date. Chapter 13 is commonly reported for seven years, though that’s standard bureau practice rather than a fixed legal ceiling — the FCRA technically allows reporting for up to 10. Both make it harder to get credit in the short term, but lenders weigh recent payment behaviour heavily, and many people are able to rebuild their scores meaningfully within two to three years of discharge.

Can I write off debt without filing bankruptcy?

Yes. Debt settlement lets you negotiate a lump sum for less than you owe without going anywhere near a court. A nonprofit DMP through NFCC helps you repay debt at reduced interest rates without formal insolvency. Both are genuine alternatives depending on your income, assets, and how much you owe.

Will I owe tax if I settle debt for less than I owe?

Possibly. If a creditor forgives $600 or more, they’re required to report it to the IRS as income via Form 1099-C. If you were insolvent at the time — your total debts exceeded your total assets — you may exclude the forgiven amount from taxable income using Form 982, but only up to the amount by which you were insolvent, not necessarily the full forgiven amount. Debt discharged in bankruptcy is generally not taxable at all.

What debts cannot be written off in bankruptcy?

Student loans (in almost all cases), recent income tax debts, child support, alimony, and debts from fraud or criminal activity generally survive bankruptcy and remain owed. Credit cards, medical bills, personal loans, and most other unsecured consumer debts are dischargeable.

Has it gotten easier to discharge student loans in bankruptcy?

Somewhat. Student loans still require proving undue hardship through a separate adversary proceeding, and discharge is still not automatic. But joint DOJ and Department of Education guidance issued in November 2022, and still in effect through 2026, streamlined how these cases are reviewed and made the government less likely to oppose a discharge request that meets certain criteria. It’s more accessible than it was a decade ago, but still the exception rather than the rule.

What is the statute of limitations on debt in the US?

It varies by state — typically three to six years for credit card debt from the date of your last payment or activity. After that period the debt is considered time-barred and creditors generally cannot successfully sue you to collect it. The debt may still appear on your credit report and creditors can still contact you — but the legal leverage disappears. Check your state’s specific rules, as they vary significantly.

Can I be chased for a debt from 20 years ago?

It depends entirely on your state’s statute of limitations and whether you’ve made a payment or acknowledged the debt in writing since it went delinquent. In most states that window is three to six years, so a 20-year-old debt is almost always time-barred and legally uncollectable through the courts. But time-barred doesn’t mean gone: the debt can still be listed as sold or transferred between collection agencies, can still show up in collection calls, and making even a small payment can sometimes restart the clock in certain states. Never make a payment on old debt without confirming your state’s rules first — and if a collector is already calling about something this old, get everything about the debt in writing before responding.

How can I write off a bad debt on my taxes?

This is a different question than writing off your own debt. If you personally lent money to someone and they never paid you back, the IRS lets you deduct that as a nonbusiness bad debt — a short-term capital loss on Schedule D — but only once the debt is completely worthless and you can show you genuinely tried to collect it. This has nothing to do with discharging debt you owe; that’s handled through bankruptcy, settlement, or a DMP as described above.

How do I get rid of $100,000 in debt?

All four routes above remain available at $100,000. Chapter 13’s unsecured debt cap is $526,700 as of 2025, so $100,000 is comfortably within limits for either bankruptcy chapter. Chapter 7 could discharge it entirely if you pass the means test. Chapter 13 would restructure it into a 3–5 year plan. Settlement could realistically clear it for $40,000–$60,000 if you have a lump sum available. A DMP would repay the full $100,000 but at a dramatically lower interest rate. The right choice depends on your income, your assets, and how much cash you have available right now.

Can I negotiate with creditors myself without using a debt settlement company?

Yes — and it’s often better to do so. Creditors deal directly with debtors all the time. Call the collections department, explain your situation honestly, and make a specific offer. If they agree, get the settlement terms in writing before you send any money. Settlement companies charge 15–25% of enrolled debt for a service you can do yourself with a phone call.

Read next

• How to Pay Off Debt — Complete Guide Hub
• What Happens When You Pay Off All Your Debt
• What is a Good Credit Score in the US?

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