What are the potential tax obligations for settling my debts?
Expect your creditor’s to send a 1099c for the amount of the difference between your balance and what they agreed to settle for. Fortunately there is an insolvency form that you or your accountant can provide to the IRS when filing your return. This insolvency form acts as a worksheet for your overall debt versus your overall assets. If you have more debt than you do assets you will be considered insolvent and not liable for any taxes. We encourage you to inquire with a professional accountant in reference to your situation. For additional reference to the insolvency exemption please see the instruction sheet for a 1099c. You can find this at www.IRS.gov. For Texas Consumers with this question or other tax related questions visit our tax expert, John P. Graves, CPA at www.JohnPGravescpa.com .
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