Are charge-offs reported as income to the IRS? We are approximately $120,000 in debt. Paying taxes on this will put us in a worse position than when we had to pay the creditors. We have no extra income right now but are planning to both get additional work in order to be able to settle our debts. We won't have money accumulated to settle, though, until these accounts have gone into charge-off status. All this is the result of a failed business venture and very poor money management.

Charge offs are not "forgiveness of debt" so they are not taxable income at that stage.