Have you received a 1099-C due to Cancellation of Debt?

1099C and cancelation of debt

If you have settled a debt or had a debt, you may receive an IRS Form 1099-C.  This doesn't necessarily mean that you will have to pay additional tax on the amount "forgiven".  Here's what you need to do:

The 1099-C has Instructions for Debtor:

You received this form because a Federal Government agency or an applicable financial entity (a lender) has discharged (canceled or forgiven) a debt you owed, or because an identifiable event has occurred that either is or is deemed to be a discharge of a debt of $600 or more.  If a creditor has discharged a debt you owed, you are required to include the discharged amount in your income, even if it is less that $600, on the "Other income" line on your Form 1040.

However, YOU MAY NOT HAVE TO INCLUDE ALL OF THE CANCELED DEBT IN YOUR INCOME (capitalization mine!).  There are EXCEPTIONS AND EXCLUSIONS, such as BANKRUPTCY or INSOLVENCY see Pub. 4681...for more details.

Most people who have had debts settled (forgiven) have gone through a very hard time, financially. And, most people who have had debts settled would fall into the catagory of INSOLVENCY, according to the IRS and several publications.

The bottom line is, if AT THE TIME OF SETTLEMENT your liabilites were greater than your assets, you were insolvent and therefore the amount of debt forgiven would be excluded.

We have helped hunderds of our clients to become DEBT FREE through DEBT SETTLEMENT, but we also have assisted them in AVOIDING (or paying very little) ADDITIONAL TAX after receiving a 1099-C.

We have put together a complete 1099-C Kit that will show you (and/or your tax preparer) how to fill out and file the proper forms.

CLICK HERE to get you FREE 1099-C KIT

Tags: debt forgiveness, 1099-C, IRS Form 982, additional taxes, IRS 4681

I Received a 1099-C, Now What?

received a 1099CIf you have received a 1099-C, DON'T PAY THE ADDITIONAL TAX until you know your rights!

If you or a debt settlement company negotiated a debt for less than the balance due and if that amount was more than $600, you most likely will receive a 1099-C.


The 1099-C looks like you will have to pay 100% of the settled or forgiven amount, but this is simply NOT TRUE!

However, a lot of tax preparers and even CPA's don't understand this law and how exemptions are calculated.

According to IRS Form 4681, there are several exemptions to including forgiven amounts back into taxable income. On page 4 of IRS Form 4681, there is an explanation of "INSOLVENCY". 

Basically the rule states:

If at the time of the settlement or forgiveness you were INSOLVENT, then the amount of the forgiveness IS NOT INCLUDED as additional taxable income.

How do you determine if you were insolvent?

At the time of the settlement, you need to show that your liabilities were only equal to or greater than your assets.

You need to complete a basic budget showing all of your income, outgo, and assets:

  • Equity in your home
  • Net value of your automobile(s), boat, etc.
  • Net value of jewelery, stocks, bonds, etc.
  • Savings or investment accounts
  • Net furniture value, coin collections, etc.

For most people who have negotiated a settlement of their credit card or cards, they usually do not have any real assets and therefore the amount forgiven is not included as additional taxable income.

You will need to complete IRS Form 982. You will check a couple of boxes and sign, and along with the Budget Worksheet, turn in with the 1099-C and your normal tax return.

Once again, don't be surprised if your tax preparer or accountant is not really up on this procedure! You might want to download IRS 4681 for them to review.

If you have already filed your taxes for the last two years and if you paid additional tax on the additional income added back into your adjusted gross income, you should file an AMENDED RETURN.

If you are still unsure of what or how to deal with a 1099-C, please let us help.

We have helped dozens of tax preparers and accountants deal with the 1099-C issue and would be glad to assist.

Got Questions? We've got ANSWERS!


received a 1099C


Tags: debt forgiveness, debt settlement in oregon, 1099-C, IRS Form 982, IRS Form 4681

Is It Possible to Negotiate Student Loans?

is it possible to negotiate a student loanIs it possible to negotiate student loans? 

It depends... There are basically two types of student loans:

  • Government Loans
  • Private Loans

There are several types of government loans, but for the most part, these cannot be negotiated.

That doesn't mean you shouldn't try! 

Besides having several repayment options, it may be possible to offer a reduced LUMP SUM PAYOFF of 50%-75% of your balance and pay off your student loan at a reduced amount.

Since most deferment or repayment plans are based on your financial situation, you should gather as much information about yourself as possible before making the calls. In order to  have a chance of negotiating a lower lump sum payoff, you must show that you are in struggling financially.

Start with a basic budget that shows your assets vs. your liabilities.

is it possible to negotiate a student loan

Again, if you do not have approximately 50% -75% of the balance due, you are probably wasting your time trying to negotiate a federal student loan.  However, budgeting will help you make a plan to save for that negotiation in the future.

You may be able to negotiate a PRIVATE student loan for less!

If you have a PRIVATE STUDENT LOAN from a bank, credit union or other private lending source, you have a VERY GOOD CHANCE of negotiating the loan!

Again, gather all of your financial information BEFORE you make the call.  When you call, explain your HARDSHIP and SITUATION and then ask the agent how much they would be able to reduce the balance if you were to pay in a lump sum right away.

LET THEM GIVE THE NUMBER FIRST!  It may be a lot less than you were willing to pay, so don't offer any amount!

Debt negotiation is not always easy for first timers, so you may want to get some advice or counseling before your call.

If you are successful in negotiating a lower amount, MAKE SURE TO GET IT IN WRITING!

Too many people have sent payments or authorized a check-by-phone debit after speaking with an agent and find out later that the company had NO KNOWLEDGE OF THE CONVERSATION!

Debt negotiation takes a lot of time and patience. 

If you would like help, click here for a FREE REVEIW.

Tags: debt forgiveness, student loan forgiveness, debt negotiaion

Student Loan Forgiveness - Big Changes are Coming!

student loan forgiveness

The total amount of all student loan debt is almost $1 TRILLION dollars! That's an average of about $25,000 per loan or about 40 Million loans!  With our economy in a recession for the last few years, many of these loans are in default.


The Student Loan Forgiveness Act of 2012 or H.R. 4170, has been introduced in congress by Rep. Hansen Clark.  If this passes, how will it affect you and your student loan?


The bill, introduced in March would create a new "10-10 standard" for student loan forgiveness:

  • If you make payments equal to 10% of your discretionary income (take home pay) for 10 years, the remaining balance of your federal (not private) student loan would be forgiven.
  • If you have been making payments on your federal student loans, your repayment period would likely be shorter than 10 years.  In other words, the amount you have already paid on your student loans over the past 10 years would be credited toward meeting the "10-10 standard".
  • The bill would also cap interest rates on federal student loans at 3.4%
  • The bill would allow private student loans to be converted to federal Direct Loans, and then enrolling their new federal loans into the 10/10 program.
  • If you enter a public service profession like teaching, firefighting, law enforcement, etc., you would qualify for a 5 year Public Service Loan Forgiveness Program!

If you currently have a Federal Student Loan, there is little you can do but keep paying.  However, if you are unemployed or have a reasonable financial hardship, you may qualify for a DEFERMENT.

If you have a PRIVATELY FUNDED STUDENT LOAN, you may qualify for a settlement or forgivenss of 50% or more. 

To learn more, CLICK HERE.




Tags: debt forgiveness, student loan forgiveness, deferment

What the Mortgage Forgiveness Debt Relief Act means for you

mortgage forgiveness debt relief actMortgage Forgiveness Debt Relief Act

In the past, homeowners using short sales or deeds in lieu of foreclosure were required to pay tax on the amount of their forgiven debt. However, the Mortgage Forgiveness Debt Relief Act of 2007 (H.R. 3648) changes this for certain loans. This Act, which has been extended through 2012, allows taxpayers to exclude income from the discharge of debt on their principal residence.

Under federal law, a creditor is required to file a Form 1099-C whenever it forgives or cancels a loan balance greater than $600. This may create a tax liability for the debtor because the canceled debt is considered “income” for tax purposes.

The Mortgage Forgiveness Debt Relief Act excludes the cancellation of the complete debt up to $2 million.  According to the IRS, the exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.

The new law provides tax relief if your deficiency stems from the sale of your primary residence, or the home that you actually live in. Vacation homes, for example, do not qualify. Here is an overview of the rules:


  • Loans for your primary residence. If the loan was secured by your primary residence and was used to buy or improve that house, you may exclude up to $2 million in forgiven debt. This means you don’t have to pay tax on the deficiency.
  • Loans on other real estate. If you default on a mortgage that’s secured by property that isn’t your primary residence (for example, a loan on your vacation home), then you’ll owe tax on any deficiency.
  • Loans secured by but not used to improve primary residence. If you take out a loan, secured by your primary residence, but use it to take a vacation or send your child to college, you will owe tax on any deficiency.

Insolvency exception to tax liability

If you don’t qualify for an exception under the Mortgage Forgiveness Debt Relief Act, you might still qualify for tax relief. If you can prove you were “legally insolvent” at the time of the short sale, deed in lieu, or foreclosure, you won’t be liable for paying tax on the deficiency.

Legal insolvency occurs when your total debts are greater than the value of your total assets (your assets are the equity in your real estate and personal property). To use the insolvency exclusion, you’ll have to prove to the satisfaction of the IRS that your debts exceeded the value of your assets.



photo by: Mike Licht

Tags: debt forgiveness, 1099-C, mortgage forgiveness debt relief act

What is a 1099-C?

what is a 1099 cWhat is a 1099-C?

A 1099-C is a statement from the IRS that you may need to include the amount of a forgiven or settled debt as income.

Let's say you are going through a very tough time financially and cannot keep up with the payments on your credit cards or personal loans.

At some point, you (or a Debt Settlement Company), may be able to negotiate a settlement on the debt you owe for less than the balance.

If the amount forgiven is over $600, the creditor may claim that as a loss to the IRS and you would then receive a form 1099-C.

At first glance, it looks as though you have no choice but to include the amount forgiven as additional income and therefore, you may have to pay additional income tax!

According to IRS Form 4681, you DO NOT HAVE TO INCLUDE the amount forgiven or settled if at the time of the forgiveness you were INSOLVENT.

Sadly, most accountants or tax preparers are unaware of how to avoid this additional tax.

How to prove you were INSOLVENT:

List all of your assets.  Your assets include:

Equity in your home. (What your home would sell for today less what you owe.)

Cash, stocks, bonds, mutual funds. (Come on...most people who are in a financial crunch don't have extra money laying around!)

The net or current values of your "things":

  • Car (it's probably not worth as much as you think!)
  • Boat, Four-Wheeler, Motorcycle, etc.
  • Furniture, tools, (get the idea?)

Now, you are going to offset this by the debt you owe:

  • Mortgage (don't forget the 2nd or equity line of credit
  • Student loans
  • Auto loan
  • Personal loans
  • Credit cards
  • Store cards
  • Back taxes!
  • Medical bills

This should show that at the time of forgiveness, you were insolvent (you owe more than your worth).

You will submit this financial worksheet along with IRS Form 982 with your tax forms.

If your tax preparer is not aware or does not seem competent dealing with this procedure, let us help!

In over 8 years of helping people reduce their debt, we have not had a client pay any additional income tax as a result of a settlement!

Need More Info? Give us a call today!


 photo by: Stefan Baudy


Tags: debt forgiveness, IRS Form 4681, do i have to pay taxes on settled debts, what is a 1099-c, IRS 4681