Tax Consequences

The effect that a settled debt may have on your tax record

Tax Consequences of the Debt Settlement
Being a popular alternative to filing for bankruptcy, debt settlement also brings a number of significant disadvantages to the person resorting to the help of a debt settlement agency. One of these disadvantages are its tax consequences. Every time a debt settlement is reached, a creditor will report the amount of canceled debt (in case it is equal to $600 or greater) to the IRS through the Form 1099 (this is obligatory and there is no legal way to escape it). The canceled part of the debt is considered to be taxable income of the debtor, therefore, you might owe taxes on this amount. This fact triggers a lot of criticism aimed against debt settlement – basically due ...[Read more]

Untaxable Canceled Debt
As you might have already understood from the “Tax Consequences of the Debt Settlement” article, the canceled part of the settled debt in usually regarded as a part of the debtor’s taxable income. However, there are certain exceptions from this rule as well. This article lists the debts that do not require you to pay income taxes in case some part of them gets canceled. So, you will not be subject to paying out the debt relief tax if your canceled debt belongs to any of the following types: 1) Nonrecourse debt If you are not liable for the debt you are currently trying to settle (nonrecourse debt), you might not have to pay taxes on the canceled part of it. N...[Read more]