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  1. #1
    Join Date
    Feb 2011
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    16

    Default Tax Consequences of Settling a Debt with Issuing Company

    My question involves collection proceedings in the State of: NV

    My question today is regarding the tax consequences of settling a credit card debt with a issuing company vs. collections agency (Not California as in the title!!)

    When you agree to settle a debt with the issuing company for less than the outstanding balance, I know that the amount you are forgiven is considered an income and you will eventually have to pay income tax on that amount.

    What happens if you settle a debt for less amount with a collections agency?
    They buy these debts at huge discounts and, therefore, they are making profit on that debt you just settled. So would they be allowed to file a 1099 or whatever and make me liable for paying taxes (like I would if I settled with the issuing company)?

  2. #2
    Join Date
    Sep 2005
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    Behind a Desk
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    98,846

    Default Re: Tax Consequences of Settling a Debt with Issuing Company

    The collection agency, as the creditor's agent, is not in a position to issue a 1099. However, the original creditor may still write off the unpaid balance and issue a 1099.

  3. #3
    Join Date
    Feb 2011
    Posts
    16

    Default Re: Tax Consequences of Settling a Debt with Issuing Company

    If they do issue this 1099, will I be liable for that "income"? That is my question.
    If that were the case, there would be millions of Americans with the same type of tax liability every year and I have never heard of that issue.

  4. #4
    Join Date
    Sep 2010
    Posts
    19,901

    Default Re: Tax Consequences of Settling a Debt with Issuing Company

    Yes, you will and people do.

  5. #5
    Join Date
    Feb 2011
    Posts
    16

    Default Re: Tax Consequences of Settling a Debt with Issuing Company

    I have heard of this happening IF you settle a debt with the company... but not if you simply do not pay.
    if you settle a debt at a discounted amount...that discounted amount is considered your income and you are liable for tax amount on that "saved" debt.
    But if you never pay or settle, you mean IRS will eventually consider that total amount as your income tax and you have to pay income tax?

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