Callers share some common concerns

Yesterday, MMI was one of nine organizations that participated in an all day call-in event called Your Money Marathon. The calls came in at a rate of about 1,000 an hour. By the end of they day, we had received an astonishing 14,000 phone calls.

I personally answered calls by concerned consumers. By noon, it was clear that there were some very common concerns. I am going to address one of these concerns each day over the next few days. Today, I will talk about settlements. I have written about the pros and cons of debt settlement in the past, so I am going to address one specific settlement issue as expressed by a woman from Aurora, Colorado.

Question: We found ourselves about $20,000 in debt to credit cards. Not wanting to go bankrupt, I made deals to pay the credit card companies 40 cents on the dollar. Now I am hearing that the credit card companies will issue 1099 forms for the debt forgiven. Is that true? I was never told about this. I will be forced to file for bankruptcy!

Answer: IRS Publication 982 states if a debt is cancelled or forgiven and a debtor receives a Form 1099-C, Cancellation of Debt, the debtor generally must include the cancelled amount in gross income for tax purposes.

There are several exceptions from the inclusion of cancelled debt in income. One of the exceptions in having to include this debt as income is if you are insolvent. You are insolvent when your liabilities exceed the fair market value of your assets. If you wish to claim the insolvency exclusion, you will need to fill out and include with your tax return, Form 982 "Reduction of Tax Attributes Due to Discharge of Indebtedness."

If you have questions about whether or not you will have to pay taxes on a forgiven debt, please seek the services of an accountant familiar with tax law. You can also find a lot of tax information at IRS.gov.

Kim McGrigg is the former Manager of Community and Media Relations for MMI.

  • The Consumer Federation of America (CFA) is an association of nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization's Board of Directors.
  • The National Council of Higher Education Resources (NCHER) is the nation’s oldest and largest higher education finance trade association. NCHER’s membership includes state, nonprofit, and for-profit higher education service organizations, including lenders, servicers, guaranty agencies, collection agencies, financial literacy providers, and schools, interested and involved in increasing college access and success. It assists its members in shaping policies governing federal and private student loan and state grant programs on behalf of students, parents, borrowers, and families.

  • Since 2007, the Homeownership Preservation Foundation (HPF) has served as a trusted, neutral source of information for more than eight million homeowners. They are partnered with, and endorsed by, numerous major government agencies, including the U.S. Department of Housing and Urban Development and the Department of the Treasury.

  • The mission of the U.S. Department of Housing and Urban Development (HUD) is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD works to strengthen the housing market in order to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; and build inclusive and sustainable communities free from discrimination.

  • The Council on Accreditation (COA) is an international, independent, nonprofit, human service accrediting organization. Their mission is to partner with human service organizations worldwide to improve service delivery outcomes by developing, applying, and promoting accreditation standards.

  • The National Foundation for Credit Counseling® (NFCC®), founded in 1951, is the nation’s largest and longest-serving nonprofit financial counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services.