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creditor's objections, settlement and taxes

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    #1

    creditor's objections, settlement and taxes

    If a creditor objects and you decide (through legal advice of your attorney) to negotiate a settlement, do you have to pay the feds taxes on any of that settlement?

    Has anyone on hear settled with a creditor due to an objection?

    Thanks
    Stopped paying CC: September 2009 ; Retained attorney: 9/9/2009; Filed Chap 7: January 18, 2010; 341 Meeting: March 9, 2010; Discharged and Closed: April 29, 2010
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    #2
    Once you file BK, you cannot settle with any creditor(s) outside of the BK, without risking getting your entire BK dismissed. Don't even think about it.

    Are talking about an Adversary Procedure, which is seperate, but linked to your BK?
    "To go bravely forward is to invite a miracle."

    "Worry is the darkroom where negatives are formed."

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      #3
      Yes I am talking about an AP. If creditor objects but makes an offer that my attorney thinks we should take, would I have to pay tax on the amount if it's less than balance?

      Has anyone settled an AP?
      Stopped paying CC: September 2009 ; Retained attorney: 9/9/2009; Filed Chap 7: January 18, 2010; 341 Meeting: March 9, 2010; Discharged and Closed: April 29, 2010

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        #4
        Originally posted by ace13 View Post
        Yes I am talking about an AP. If creditor objects but makes an offer that my attorney thinks we should take, would I have to pay tax on the amount if it's less than balance?

        Has anyone settled an AP?
        You usually would have to pay IRS as the difference is a forgiven amount and you financially benefited from that income (savings). A 1099 would be issued.

        What is the amount and creditor as an AP does not stop your bk, it only reserves the Judgment on that specific creditor as to it discharge. Have you already gotten an AP, or is it being threatened? Unless you have, your lawyer may talk to the Adversary, but make no side deals. He knows that I'm sure. 'Hub
        If I knew it all, would I be here?? Hang in there = Retained attorney 8-06, Filed 12-28-07, Discharge 8-13-08, Finally CLOSED 11-3-09, 3-31-10 AP Dismissed, Informed by incompetent lawyer of CLOSED status, October 14, 2010.

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          #5
          Originally posted by AngelinaCatHub View Post
          You usually would have to pay IRS as the difference is a forgiven amount and you financially benefited from that income (savings). A 1099 would be issued.
          Usually is the key word here. A 1099 would usually be issued. But.... when you and/or your attorney are dancing with the creditor, any term or condition that both of you agree upon can be worked out.

          Therefore, it could possible be worked out in the deal that the creditor not send you a 1099. If you don't ask, you don't get.
          All information contained in this post is for informational and amusement purposes only.
          Bankruptcy is a process, not an event.......

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            #6
            No, you do not pay taxes and should not get 1099'd on a settled AP in BK. It is not forgiven debt in the strict sense. They are not forgiving it, they are making a decision about the risk of litigation and agreeing resolve a dispute.

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