Why You are Never Exempt From IRS Debt Settlement

If you are a borrower in debt to the a creditor or collection agency there is some important information that you will need to know in order to successfully relieve yourself of the debt owed. For instance, after a creditor has accepted a financial on your debt, usually due to habitually failed attempts to collect on money owed, they will commonly sell to a third-party debt collection agency (or junk debt agency). The junk debt agency will purchase your debt from the creditor for a fraction of the total debt owed. This usually provides the collection agency with a good deal of wiggle room to renegotiate the terms of payment on your debt.

Debt Forgiveness

In this situation, depending on how much the collection agency purchased your debt for, you can usually negotiate for debt forgiveness of anywhere from twenty-five to sixty-five percent. This means your debt that was just $10,000 could be readjusted to $6,000. Provided that the debtor will be able to continue paying the minimum payments on their debt, this will be a debt forgiveness of forty-percent or $4,000, a rather large chunk of change.

Where the IRS comes in to play

After a financial resolve most debtors feel relieved and fail to realize that they are accountable and taxable for the amount of debt that was forgiven.

  • That $4,000 they thought they would never have to deal with again comes back to bite them one final time.
  • The collection agency is required by law to report any debt forgiveness in excess of $600.
  • The collection agency will file a 1099-C form and notify the debtor.
  • Since most debtors are oblivious the the laws and regulations surrounding the situation they've back themselves into, seeing the 1099-C form coming from the collection agency typically comes as a massive shock and usually some sparks.

Getting Help

At this point is it crucial for the debt to contact a debt settlement attorney or other qualified professional who can help them figure out the next step. In this situation you will want to find someone who knows the ins and outs of the IRS and can help you figure out what type of exemptions you are eligible for. Exemptions will help lower your taxable income to reduce the sting your previous debt will put on your tax return.

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