Debt Negotiation Advice - I want to pay off a debt. And negotiate a lower payment. However, I been told that the difference can be cha

I want to pay off a debt. And negotiate a lower payment. However, I been told that the difference can be cha

I want to pay off a debt. And negotiate a lower payment. However, I been told that the difference can be charged back to me on a 1099 as additional income. Is this true?

Public Comments

Yes, forgiven debt is taxable.
never heard that before www.creditinfocenter.com
Yes if the amount "forgiven" is over $600 then you will be issued a 1099 and it will become unearned income. However, this is not necessarily a bad thing. For example if they are going to settle a $10,000 debt for $6,000 you will get a 1099 and have to pay taxes on $4000. But even if your tax rate is 20% then that is only $800, so you are still paying less than the entire debt.
Yes, it is legal but first check your State's Statute of Limitation (SOL) to see if you have a legal obligation to pay the debt. Credit card accounts are open accounts. http://www.bankrate.com/brm/news/cc/20040116b2.asp#tx If not, IRS regulations allow for a Form 1099-C, Cancellation of Debt, to be issued on accounts that are uncollected no less than 180 days after the account became delinquent! However, if you are dealing with a Junk Debt Buyer (JDB) who purchased your debt for pennies on the dollar, it would be a great windfall for them when can deduct your uncollected debt from their taxes and in addition to that and collect many times what they actually paid for the debt from you. Also, once an delinquent account has been reported to IRS, it must fail to exist and show a zero balance All collection activity must cease. There is definitely something fishy here. Anyone receiving an IRS Form 1099-C is encouraged to file a complaint with the IRS. Perhaps an audit of the JDB by the IRS can clarify this new and apparent scam to fleece the IRS as well as the American consumer.
You should report the difference from a canceled/forgiven debt, regardless of the amount, on the "Other Income" line of your 1040 form. If the creditor 'forgives' $600 or more off the balance due, they must send you and the IRS a copy of a 1099C. This amount is included as income on your taxes. (See IRS Pub. 17, Chpt. 12) However, there are exceptions to this rule in which you might not have to claim a forgiven debt as income. (See IRS Pub. 908)