Latest news with #Form1099-C
Business Insider
10-05-2025
- Business
- Business Insider
I was $55,000 in debt 2 years ago. Thanks to debt relief, I've cut more than $12,000 off that bill so far.
After losing my full-time job in 2023, my savings were nearly gone, and I found myself relying on credit cards to stay afloat. I needed stable income, not more financial setbacks. Five months later, I finally got back to work, but the damage was done. I had defaulted on almost everything except my mortgage and utilities. My credit score had tanked, collections calls were constant, and I couldn't see a way out. It felt like I was back in the late '90s, struggling with the debt that came with the financial mistakes of my early 20s. Back then, a debt relief program helped me reduce what I owed and set up payments I could actually manage. It worked once, so I figured it might work again. Debt relief comes with risk, but it can be valuable Debt relief programs help you settle unsecured debts — like credit cards, medical bills, or personal loans — for less than you owe. They negotiate with your creditors and set up a payment plan that fits your budget, so you can stop struggling with high interest and minimum payments. Natalia Brown, chief compliance and consumer affairs officer for National Debt Relief, says, "Debt settlement is often worth considering for individuals with $7,500 or more in unsecured debt who are struggling to make minimum payments and facing compounding interest that could take years to pay off." When you work with a debt relief program, you essentially hand over your delinquent accounts for them to handle. This comes with some risk, as you'll be asked to stop making any payments to creditors, go into default, and do some short-term damage to your credit score. It can also leave you open to possible legal action from your creditors, all of which the Consumer Financial Protection Bureau warns against. However, a reputable program will step in to manage the situation by fielding collections calls and responding to legal actions on your behalf (if you're working with a law firm like I am). Not every account is always able to be settled. Creditors may refuse to work with the company, or only some debts may end up being settled, which can leave you liable for the rest, often with added charges. Even if some of your debts are settled, the accumulated fees and penalties on any remaining balances may offset any savings. It all depends on your situation. There are also tax implications to consider. Forgiven debt can be seen as income that is subject to federal taxes. I found this out the hard way when I received two Form 1099-C: Cancellation of Debt for some of the accounts I had settled and paid off in 2024. Why I chose to go with a debt relief program When I was considering whether debt relief was the right move, I wanted to know how much I could actually save and what the long-term effects on my financial health would be. The company I went with told me they are often able to settle debts for 50% less than what's owed, oftentimes for more. They made no guarantees, were upfront and transparent about any and all fees that would be charged, gave me access to a client portal that allows me to track where every dollar goes, and also provided extensive customer support to address any questions or issues I might have. I factored in all of this, plus any potential risks to my long-term credit score, when deciding if debt relief made financial sense for me. According to the American Association for Debt Resolution, consumers save an average of 32% on settled debt. Including fees, my savings were estimated to be around that amount. Given this, the fact that my credit was already damaged, and most of my accounts were charged off, enrolling in a debt relief program serviced through a law firm made sense for getting my situation under control. Compare debt relief options I'm saving over $12,000 Seventeen months into my program, the law firm I work with has negotiated about $25,700 of my $55,000 of debt I enrolled with to about $13,400 in settlements — a 52% reduction in what I owed. To keep my monthly payments manageable, I have to wait for the current settlements to be paid off before they can move forward with the rest of my creditors. This lengthens the amount of time I'll spend in the program, but doesn't add to the fees and keeps my payments affordable. I have had good experiences with debt relief programs so far. The first one I completed in my 20s enabled me to manage my finances and repair my credit completely over time. This second time around, I've seen my credit score improve by 150 points already and have seen substantial savings. I am at a point where I am ready to sell my house and pay off all my debt to be done with it once and for all. But if I didn't have that option, I would see the program through to the end. Is debt relief the right choice for your situation? That all depends on your situation, goals, and financial situation.
CBS News
01-04-2025
- Business
- CBS News
3 ways credit card debt relief can impact your taxes this year
When you're struggling with growing credit card debt , finding relief can feel like a weight has been lifted off your shoulders. Whether through negotiated settlements, forgiveness programs or bankruptcy, escaping the cycle of minimum payments and mounting interest brings undeniable peace of mind. But there's a catch that many don't see coming until tax season rolls around. Debt relief can trigger significant tax consequences, which means that without proper planning, you could find yourself trading credit card debt for tax debt , which comes with its own set of challenges and collection powers. The last thing you want is to be caught off guard during tax season, so it's important to understand how credit card debt relief affects your taxes. That way, you can ensure you're prepared and able to navigate any potential liabilities. By factoring the potential tax implications, outlined below, into your debt relief strategy , you can avoid unexpected pitfalls and maximize the benefits of getting your financial life back on track. Start the credit card debt relief process today . Here's what you need to know about how credit card debt relief can impact your tax situation this year: When a credit card company forgives or cancels your debt — whether through debt forgiveness, direct negotiation or a charge-off — the Internal Revenue Service (IRS) typically considers the canceled debt as taxable income . For example, if you settled a $10,000 credit card debt for $4,000, the $6,000 that was forgiven might be treated as income on your tax return. In these cases, the credit card company will generally send you a Form 1099-C, "Cancellation of Debt," which reports the amount of debt forgiven to both you and the IRS. This amount gets added to your other income sources, potentially pushing you into a higher tax bracket and increasing your overall tax liability. How to deal with it: Review any 1099-C forms carefully for accuracy and include the forgiven debt on your tax return (usually on Schedule 1 of Form 1040). If you've had significant debt forgiveness, you should also consider consulting a tax professional to explore possible exclusions or to prepare for the additional tax burden. Learn more about your debt relief options now . There are two major ways to potentially avoid taxes on forgiven credit card debt: insolvency and bankruptcy . If you were "insolvent" when the debt was forgiven (meaning your total debts exceeded the fair market value of your total assets), you might qualify for an exclusion that reduces or eliminates the tax impact. For example, if your total debts were $50,000 and your total assets were worth $40,000, you were insolvent by $10,000. If $15,000 of debt was forgiven, you could exclude up to $10,000 from your income, but would still need to report the remaining $5,000 as taxable income. On the other hand, debts discharged through bankruptcy proceedings are not considered taxable income. This is one of the few straightforward exclusions in the tax code regarding forgiven debt. If you've gone through Chapter 7 or Chapter 13 bankruptcy and had credit card debt discharged as part of the proceedings, you won't need to report that forgiven amount as income on your tax return. How to deal with it: Use IRS Form 982, "Reduction of Tax Attributes Due to Discharge of Indebtedness," to claim either the insolvency or bankruptcy exclusion. Be sure to document your assets and liabilities carefully to support any claim of insolvency, or keep documentation of your bankruptcy discharge to support your tax filing. The tax impact of debt forgiveness falls in the year the debt was actually canceled, not when you stopped making payments or when you reached an agreement with creditors. This timing element creates opportunities for strategic planning. For example, if you negotiate a settlement in December 2024 but the credit card company doesn't process and finalize the forgiveness until January 2025, the tax impact would fall in the 2025 tax year, not 2024. This could be advantageous if you expect your income to be lower in 2025 or if you need more time to prepare for the potential tax bill. The state you live in also matters. While federal tax rules apply nationwide, state taxes may treat forgiven debt differently. Some states follow federal tax treatment, while others have their own rules. Some states don't impose income tax at all, while others might offer more generous exclusions than federal law provides. How to deal with it: Request written confirmation of exactly when the debt will be forgiven. If possible, time your debt forgiveness process strategically to align with years when your income might be lower. You should also research your state's specific rules regarding canceled debt or consult with a tax professional familiar with your state's tax code to maximize tax advantages. Credit card debt relief can provide much-needed breathing room in your finances, but it's important to be aware of the potential tax implications. If a portion of your debt is forgiven, you may owe taxes on that amount. To avoid surprises, review any Form 1099-C you receive, understand your potential obligations and consider consulting a tax professional to ensure you handle everything correctly. With the right knowledge and planning, you can move forward confidently and make the most of your debt relief efforts.
