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Grim: That not entirely clear. There have been some court cases (which of course I can't find right now) that found for the debtor...saying in effect that once the debt had been written off and a 1099c issued, it was uncollectablle by a JDB. This is why I suggest that when someone does a settlement for less than the full amount, they insist on a 1099c for the balance. Yes, the IRS might come after tax on the balance, but they'll at least take "insolvency" as a reason not to pay...and they'll also take payments...

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That's why you have to really give debt settlement some thought. There's lots of questions...

1. What's the impact on your CRs? Not good, unless the PFD.

2. Is it an OC a CA or a JDB? The OC is the only one that can do anything nice for your CRs.

3. How's the math? Does the amount you're settling for leave enough behind that the taxes would hurt?

Now easy answers...

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When I settled with a number of creditors in 2002, only the OCs with which I settled issued 1099-Cs. I paid a couple of thousand dollars in taxes on those settlements (in installments to IRS). As willingtocope said, it is something to be taken into consideration when making your decision as to whether to settle the debt and for how much.

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In considering my settlements I took into consideration the following:

1. The 29.9% interest accrued over 150 days

2. Late and overlimit fees accrued

3. 1099c tax implications

4. Destruction of credit

In dealing with OCs I found that anything less than a 60% settlement is of questionable good if you will not pass the insolvency test.

What weighed me towards settlement was the fact that the debts were only in my name and not my wifes. I felt it was sort of a modified BK in which my credit took the hit, but left my wifes credit score very high.

I still dont know how the tax issue will turn out for myself. It is likely the 1099cs will be offset by business losses.

I settled my largest account with MBNA for 30%. This definitly outweighed the negatives for me.

I have one account left to deal with. The phone no longer rings 30 times a day.

Everybody must do their homework for themselves and make their own decisions. I agonized for a long time on how to best deal with my situation.

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By less than a 60% settlement I meant that if you cant get the settlement payment to less than 60% of the balance it might not be worth the effort.

For example: (Rough Numbers)

Original Balance $6,000

30% x 5 months = $750

late fees $35 x 5 = $175

Over limit$35 x 5 = $175

Current balance for settlement $7,100

$7,100 x 90% = $6,390

$7,100 x 80% = $5,680

$7,100 x 60% = $4,260 with potential tax due of approx. $710 = $4,970, a $1,030 savings at the expense of your credit score.

$7100 x 30% = $2,130

Then take into consideration the tax consequences. At 30% I may make great sense to settle. From 60 to 80% the benefits are questionable.

Lets face it, if we had the funds to settle before the added fees and interest, we'd just pay our bills and move on. Then again if you can get a 30% settlement there is much to consider.


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