Some forget about taxes for debt settlement

Some forget about taxes for debt settlement. Although many consumers may opt for debt settlement when they face serious financial problems, there are some aspects of the process that can be forgotten.

According to a report from the western Colorado news provider the Grand Junction Free Press, many consumers who choose to deal with their creditors by seeking the help of a debt settlement firm may not remember that they can receive a tax form, called Form 1099-C. This requires the recipient to pay taxes on the forgiven amount, which the government counts as being added to their income.

The paper said if this happens, consumers should consult a tax preparer to see if they can obtain another sheet, called a Form 982, which may help them reduce the taxable amount of that forgiven debt. However, the newspaper warns that even in these cases debt settlement will stay on their credit report for years.

The government recently made debt settlement safer for consumers by passing provisions of the financial overhaul bill. These only require Americans to pay if the work of a company that says it can reduce an amount owed delivers on its promises.