debt settlement tax issues

vapd1 - I personally have had a creditor send me a 1099 for the amount "forgiven" on a debt when I settled the account for less than was actually owed, and I had to claim that "forgiven" amount on my taxes for that year.

Also, when you pay a debt in settlement rather than in full, it shows up on your credit report as "settled for less than actually owed", which is definitely not as good as "paid in full". However, if you are in a situation where settlement is your only option, you may be willing to deal with the scenarios above.

I don't know if creditors are still sending out 1099's for settlement accounts - does anyone else know for certain? My situation happened a few years ago.

The "settled" amount is treated as an income and it has to be sent to the IRS for tax filing. The creditor will send you a 1099 C form. Read more here.

http://www.debtconsolidationcare.com/settlement/forgiven-debt.html

you may not have to pay tax if you are insolvent and can file form 982 with your taxes.