If you are overwhelmed with credit card debt you may get the urge to contact your creditors and make an offer to settle. Initially this can help you relieve your debt but there are some consequences.
If you owe $8,000 and you settle for $5,000 you could owe taxes on $3,000, the amount of forgiven debt. There is a chance that you may be required to report this as taxable income when you file your taxes.
There are two situations in which you are not required to report settled debt as taxable income. If you are bankrupt or insolvent. Insolvent is a situation in which your liabilities exceed your assets. Once you settle your debt you will probably receive a 1099-C, which is a debt cancellation form. As soon as you receive this form contact a tax attorney or a tax adviser for more direction. Your tax professional may require you to file IRS form 982 in addition to the 1099-C.
To Your Great Success
Mel Richardson
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