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  1. #1
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    Aug 2014
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    Default Debt Forgiveness After the Statute of Limitations Expires

    My question involves collection proceedings in the State of: NY

    Not sure if this question is in the right place cause it covers different topics.

    If you have consumer debt and the SOL on it has expired can this debt then still legally be "forgiven" by the creditor triggering the 1099 and potential tax liability?

    Also, if you have a consumer debt lawsuit filed against you that is ultimately "dismissed with prejudice" by the judge can this then be "forgiven" by the creditor triggering the 1099 and potential tax liability?


    Thanks.

  2. #2
    Join Date
    Sep 2005
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    Default Re: Debt Forgivness After the Statute of Limitations Expires

    The statute of limitations relates only to a creditor's ability to collect a debt through the courts. A creditor can write off a debt that id deems uncollectable, independent of the statute of limitations for suing.

    You have not shared any facts about a lawsuit or its dismissal. There are reasons a lawsuit might be dismissed that are independent of the validity of the underlying debt, and there are possible resolutions that might call into question the validity of the debt.

  3. #3
    Join Date
    Aug 2014
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    10

    Default Re: Debt Forgivness After the Statute of Limitations Expires

    Hi. The debts were all valid. The judge decided after it being the second or third meeting to dismiss the case with prej because the creditor decided they no longer wanted to pursue it (defendant couldn't pay as a result of sudden severe disability prior to default) all documented.

    I am a little confused with the terms write off, charge off and forgiven. Seems different sites define these terms differently. Some define write off as a simple accounting procedure after which you are still liable for the debt and often precedes the stage when the debt is sold to a collection agency. Some define it the same as forgiving which makes little sense to me.

    My question just pertains to the forgiveness of debt, which in my understanding is the final phase of a debt when a 1099 is issued which is considered by the irs as income to you and must be addressed with the irs and from then on no longer involves the creditor and can no longer be sued for. The debt is forgiven and you pay the tax on it if required.

    A quick related question.. when a portion of a debt is forgiven either through a settlement or the creditor forgives it all (question above) and issues the 1099 - an amount which is now considered income to you and needs to be addressed with the taxman ... my understanding is there is a special form that one can submit to the irs which all your assets and liablities are counted and if you meet a certain number you owe no taxes on it. What year is looked at in terms of the assets and liabilities? Is it the current year? If one just got a settlement would this be looked at as assets which could pay the tax on the 1099 or only the year the 1099 was filed for?

    Thanks.

  4. #4
    Join Date
    Sep 2012
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    1,991

    Default Re: Debt Forgivness After the Statute of Limitations Expires

    start here Publication 4681

  5. #5
    Join Date
    Aug 2014
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    10

    Default Re: Debt Forgivness After the Statute of Limitations Expires

    Cancellation of debt 1099-C. That's what it is. Thanks for the link!

    I suppose even if he did get a few 1099-Cs at once, and he wasn't able to prove insolvency due to receiving a large settlement before the cancellation of the debt, with his current income so low and non taxable (to a point), I suppose he likely would owe relatively little taxes on it because the taxable "income" would be relatively low. I'll have to get a good CPA that has a background in taxes to handle this stuff.

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