Settling - then you get a 1099?

[Majakat]

If you settle with a creditor, you get a 1099 for their loss, right?

[jwmc1]

They may send one...I have settled a bunch in the last two years and have yet to see one. They however do have three years to send it to you. If you can prove you are insolvent, you can avoid the tax, however you have to prove you are insolvent in the year in which you get the 1099, not when you settled...pretty strange rule.

[frogger]

If you settle with a creditor, you get a 1099 for their loss, right?

It depends.

First of all, if you are going to do any type of settlement, make sure that you have it in writing. All details should be spelled out, including if you are or are not going to get a 1099. I should be spelled out as to if you're going to get a 1099, and it should be spelled out as to how it's going to be reported on your credit.

And if you settle with a debt buyer, they actually have no loss when you settle with them, for they bought the debt for around 2 cents on the dollar. Anything more than that is profit, so if you settle for 40 cents on the dollar, what did they loose?

Get EVERYTHING in writing before you attempt any type of settlement.

[catleg]

You probably will get a 1099-c from an OC, if the amount of debt "forgiven" is over $600.

"Junk" debt buyers have a safe harbor from having to file a 1099 since it's doubtful they can accurately identify the correct amount to be reported.

It's supposed to be just the amount of "principal" you received (purchases and advances), no interest, late fees, overlimit fees, or any other add-ons, minus what you paid in settlement.

Essentially you're being taxed on the benefit you received from using the credit card the same way as if it had been given to you as a prize in a contest, for example.

[GoingDown]

They may send one...I have settled a bunch in the last two years and have yet to see one. They however do have three years to send it to you. If you can prove you are insolvent, you can avoid the tax, however you have to prove you are insolvent in the year in which you get the 1099, not when you settled...pretty strange rule.

Just because you didn't receive any in the mail yet, doesn't mean that they didn't send one to the IRS.

OC's are required by law to send one to the IRS on anything cancelled over $600.

A lot of times, they don't bother sending one to the debtor, but you might eventually be hearing from the IRS about it.

[Flamingo]

Not receiving a 1099 does not mean you do not have to report the settlement to the IRS in the year forgiven. The forgiven amount is taxable income and if you go the insolvency route, make sure you get a tax expert to do your taxes because your chances of getting audited skyrocket as claiming insolvency is a big audit trigger.