Settlement 1099 foregiveness part of Stimulus Package?

[sajecw]

I have about $250,000 in credit card debt.

Bank of America offered to settle $114,000 in debt for $12,750.

All other creditors want to work with me except for Discover and Capital One.

I could borrow money to settle for about 25 cents on the dollar, BUT I was told that the creditors will issue me a 1099 for the forgiven amount.

So even if I can pay off all of my debt for 75k, I will be left with a tax bill of about 50k if I receive a 1099.

I know that mortgage settlements do not require a 1099 for a period of time. Does this apply to credit card settlements?

I also heard that settlements do not show up as a zero balance on your credit report, even though they are paid in full according to the settlement. Is that true?

[EricaCallaha]

You will receive a 1099 from the credit card companies if you settle. Settling is hard. It all depends on how you word the letter. We settled years ago with a company and negotiated with them to mark our credit report as paid as agreed instead of settled. Some companies will do it and some won't.

Good luck.

[HHM]

No, that mortgage tax forgiveness act does not apply to CC debt.

You will want to review IRS Form 982 to see if any the exception to paying income tax on forgiven debt apply.

Generally speaking, debt settlement is the true "last resort", bankruptcy is almost always are more cost effective option and better for your credit (that is correct, DS is actually worse for your credit than BK).

Also, we are starting to see that even when someone settles a debt, the creditor is simply selling the deficiency to other collection agencies to collect (even after the creditor issued a 1099).

[sajecw]

HHM: I figured as such. My accountant advised me not to settle. I would have to borrow the money and then owe the IRS. Then have to deal with tracking down creditors to clear my credit report and then probably have collection agents harassing for settled debt.

I thought settleing was the "right" thing to do so they get something, but BK seems to be the only course of action at this stage.