As more and more Americans find themselves increasingly in debt; many seek alternative methods of reducing debt loads such as negotiating with their creditors. Often, in such negotiations, creditors agree to reduce the amount of debt owed. Terrific, right?
Don’t spend that extra cash just yet.
Companies that reduce debt loans in a non-bankruptcy discharge are required to report the reduction totals $600 or more. The amount of the discharge is to be reported on a form 1099, a copy of which is provided to the customer and to the IRS.
Discharge of debt is considered income to the debtor in a non-bankruptcy discharge and must be reported on the debtor’s personal income tax return.
Breathing a sigh of relief because you opted for bankruptcy instead? Not so fast. While consumer debts are not required to be reported to IRS, indebtedness acquired as a result of a business or investment purpose may be – including discharged penalties, fees, administrative costs, and fines.
Consult your tax advisor if you have questions.
