I owe 60,000 in credit card debt. If I settle with the issuers for 20,000, will I get a 1099 for the difference?

MukatA

Yes, debt cancellation is income. You will get 1099-C. Read about debt cancellation, Your U.S. Tax Return: The U.S. Income Tax Topics 1

ScottGem

That depends on the creditor, they may or may not bother filing the 1099-C. They may not even be able to. Lets look at an example:

Lets say the balance on card A is $5000. Lets say the original issue wrote off the $5000 and then sold the debt to a 3rd party for $500. Now, you seetle with them for $2500. In fact they have made a $2000 profit so there is no forgiven amount that represents income to you.

ScottGem

Comments on this post
misterzay disagrees: if thry wrote off the debt they would get back a % of what ever tthe collection agency would settle for, I think

First, may I call your attention to the guidelines for using the comments feature found here:

http://www.askmehelpdesk.com/feedbac...ure-24951.html

I'm sorry but you "think" wrong. If you are going to give a negative rating, you should be sure of your facts.

If a debt is charged off, the creditor already took a tax loss on it. Therefore ANYTHING collected on it is pure taxable income. So there is nothing to forgive anymore.

If a collection agency purchased the debt, they now own it. They already paid the original creditor for it so they would not have to pay anything more to the original creditor. If they didn't purchase the debt, but are acting on behalf of the original creditor, they get to keep a percentage of what they get, not the other way around.