Another difference between filing for bankruptcy and debt settlement is tax consequence. In bankruptcy, there is no tax liability to the debtor for the discharge. In debt settlement the Debtor may need to report the canceled portion of the debt as taxable income. (See IRS Publication 908) The Internal Revenue Service considers $600 or more of forgiven debt as taxable income. The forgiving creditor must provide the taxpayer with a 1099-C tax form. You may need to consult with an accountant to determine any tax liability as a result of debt settlement.

Posted in: Debt Settlement FAQ