Prove insolvency to avoid paying tax after settlement

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Yes, I did some research and it says, If you recieve a 1099 C on discharged amount...and you can prove insolvency, to fill out the tax form and put on there insolvency and to keep your records.

Lets see if I understand this right:

I owe 25,000.00 in credit card debt....my assests equal NATTA. I think I am pretty much insolvent...
Even if one card is discharged at one time and say 2500.00 is discharged (I still have no assets worth anything but our dogs..so still pretty much insolvent)

I believe, in order to prove insolvency, you would have to file bankruptcy and have the debt discharged by the court. Otherwise anyone could claim their were insolvent at anytime to escape paying their bills. Under the current laws, you must under go financial counseling and they court will try to steer you towards chapter 13 (repayment) first. By filing chapter 13, it will remain on your credit report a slightly shorter amount of time (8 years compared to 10 for chapter 7). your payment will be made to the trustee of the court, and all interest and fees will be stopped on your accounts, and may relieve you of some tax burden on these discharged debts (however consult a attorney for clarification).

Any filing for bankruptcy is a negative mark on our credit report, and should be avoided at all costs. If you find you really have no other alternative, then Chapter 13 is probably the most ethical option, as you will still be repaying most of your debt, but on term you are able to live with, and with the protection of the court while you do it. Chapter 7 or total discharge of all debts, may result in the loss of some assets or property to pay some of your creditors. It will stay on your credit report for 10 years.

Obviously the best option is to take advantage of the free consolidation consultation your were offered when you registered for his site. While consolidation may not be the right answer for you, it may help you figure out what the best options for you are.

Hope this helps.

Hey Clay...

I pulled up debt settlements and tax consequences and it says that if you are insolvent at time of debt settlement, to fill out some tax form (I have a copy of it already at home, but forgot the form number). and send it in with your taxes. I will also send in a notorized statement with my tax form proving I was insolvent.

It will be awhile before this actually takes place though, just wondering if anyone has already did this. I have no intentions of filing bankruptcy, this was my whole purpose of signing up the debt settlement company.

Duplicate Content removed as per forums rules - Mike

Just found this on another site...

I do not believe you have to file bankruptcy to prove that you are insolvent. I am with a debt settlement program and they had instructed me on my options before I signed up with them. I am new so I haven't had to do anything with my taxes yet. I have spoken with others who use the same settlement company and they were able to prove they were insolvent.

Thanks MsCallieCat

That is what I found out today also, but someone deleted the information I posted on it. Could not tell you website I found it on, but I know what I read... I feel somewhat better.

I wonder if it will be difficult to prove it though. Surely the settlement company will give you a statement or our verification of the program would be enough.

Do you know?

ljclark,

I'm really not sure since I have not been through the tax process yet and I'm still waiting for my first debt to be settled. When I was signing up with them, they did state that I would need to ask a tax advisor for proper advice. Pretty much if I can't pay my debts in full, then I can't pay taxes on the unsettled amount over $600. I believe they do send verification after the debt has been settled though. I did send an e-mail to my debt counselor for better verification because I don't want to steer anyone wrong on this matter.

I did alot of research on it because my company did could not recommend me do anything...they were giving me the inside scoop and that was it.

I found out that all you have to do is send in this separate form and check insolvency to it and perhaps some sort of verification.

The information I read stated that the cc companies don't always report it to the IRS, so we may not get a 1099C tax paper. Just because we don't get a 1099 C tax paper, they said do not think you do not need to go ahead an file the tax form for insolvency.

It is kind of simple--if you have no assets of any sort then it should not be difficult to prove insolvency....

Im going to start negotiating with my creditors to settle several accounts, when I do settle the account, who gives me the 1099c form? or i ask for it?

Im going to start negotiating with my creditors to settle several accounts, when I do settle the account, who gives me the 1099c form? or i ask for it?

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actually the govt sends it after the creditor or CA you settle with files the amount on their taxes.

We settled on 9 cards and were 1099'ed on any that settled with the original creditor. I filled out an IRS form (952, maybe) and sent that in with my tax return and never had an issue. I had kept a running spreadsheet as we settled of what we owed, had been written off and of our assets and liabilities. We were insolvent for every 1099 so never had to pay taxes on what they had forgiven.

I looked it up and it's Form 982 from the IRS.

Anyone here have personal experience settling with Target?