What are the possible tax consequences for a debt that has been settled?
Creditors are required to report canceled or forgiven debt amounts exceeding $600 to the IRS and you are supposed to report the same as income on your annual tax return. However, if you were insolvent and in a financial hardship at the time, the IRS permits you to write off any income from canceled debts by the amount you are insolvent. Therefore, unless you have a positive net worth, then you ordinarily will not be obligated to pay taxes on the forgiven amounts. Also, if you do not qualify as insolvent, non principal amounts such as fees accumulated on the account may be deducted from the amount reported. Refer to IRS Publication 908 for exact details. For example, if you are in a hardship and have $30,000 in credit card debt and that debt is settled for $20,000, you could receive a 1099 for the forgiven amount of $10,000. Even in the rare occurance of having to pay taxes on this amount, you might pay a few hundred dollars. The bottom line is that you are much better off settling your accounts for less than the full balance even with the tax consequence.
Q: Who is qualified for a Debt Consolidation and Settlement Program?
Q: How soon will my accounts be settled?
Q: How does debt consolidation and negotiation compare to bankruptcy?
Q: Will debt settlement hurt my credit?
Q: What is the difference between debt settlement and consumer credit counseling?
Q: Do I have to include all my accounts in a debt consolidation and settlement program?
Q: What if my creditors won't settle?
Q: How long does a debt negotiation or debt settlement program take to complete?
Q: What kind of accounts qualify for a debt consolidation and settlement program?
Q: What are the possible tax consequences for a debt that has been settled?
Q: Will I continue to get calls and correspondence from debt collectors?
Q: Will interest and late charges accrue on my accounts while I am in debt settlement?
Q: Can I settle my accounts on my own?
Q: Is it a good idea to borrow from my 401k retirement plan to pay off my credit cards?
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| Our Program | Debt Consolidation Loan | Credit Counseling | Minimum Payments |
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| Total Unsecured Debt | $30,000 | $30,000 | $30,000 | $30,000 |
| Months To Pay Off | 46 | 60 | 60 | 433 |
| Interest Paid | None | 12% | Variable | 18.99% |
| Monthly Payment | $498 | $667 | $855 | $900 |
| Total Est. Cost | $22,950 | $40,040 | $51,300 | $80,619 |
* The above numbers are an example of past performance and are not intended to be a guarantee of any future settlement results.
