Settling a Debt for less than you owe can cost more than you think
Posted By Robert Kovacs on Feb 24, 2010 6:52pm PST
Yes settling a debt for less than you owe will save you money but it is not going to save you as much as you think.
When you settle a debt with your credit card or other creditors for less than you owe the amount forgiven is taxable income.
For example if you owe Bank of America $20,000 and they forgive $10,000 the forgiven $10,000 is treated as income to you which you will pay taxes on at year’s end. The creditor will issue you a 1099.
Also debt settlement for less is reported on your credit report and can negatively impact your credit score.
In bankruptcy debts are discharged through a court order. Discharged debt in bankruptcy will not be taxed or reported as income.
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Debt, Bankruptcy , Debt Collectors , Creditors , Discharge, credit cards, Credit Score, Credit Report, Credit Reports, Credit Score, Credit, DOR, tax, 1099, debt settlement