Debt Settlement and Income Taxes - Five Details Buyers Have to Know

People who have faced unemployment due to the recent economic recession find it hard

to pay off their debts just like those who are facing financial difficulty due to other reasons. Debt settlement is the most common sought of relief that most debtors opt for. Here a debtor pays a portion of his debt while the remaining debt is forgiven by the creditors. What must be kept in mind is that the debt amount which has been forgiven is taxable.

A debtor has to have at least ten thousand dollars in unsecured debt in order to get a settlement from his creditors. A creditor would agree to settle the account if the debtor has been missing out on his payments or if he is on the verge of filing for bankruptcy. Under these situations a creditor is at a risk of losing huge sum of money.

The debtor has to pay the remaining amount of money to his creditors either in one single installment or through monthly installments. Most of the creditors want to take their money in a single down payment.

A debtor can negotiate debt on his own or he can take the assistance of qualified debt settlement companies. There are a number of debt relief networks which can help a consumer identify good settlement companies.

Any debt settlement where more than six hundred dollars are forgiven must be reported on IRS form 1099-C. If the forgiven amount is less than six hundred dollars, the onus of tracking and reporting it lies with the debtor.

In order to verify if your case qualifies for some exception or exclusions you can go through the exception and exclusions included in IRS Publication 4681. All complicated tax situations should be reviewed by a qualified tax professional.

Debt Settlement and Income Taxes - Five Details Buyers Have to Know

By: Channing Blaine

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