Are there tax consequences of a successful workout?
A. Sometimes a creditor will send a 1099 statement for the amount they have written off. The government calls this forgiveness of debt income. You must report this on your taxes. Most people I deal with then use the exception in the tax law that if you are insolvent before the forgiveness and insolvent after the forgiveness that you do not have to pay tax on it. You should, however, report it and fill out the proper forms if you get a 1099 from the creditor.
