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Hardship Debt Settlement Taxes explained by Credit Alliance Group

Guest post by: Bryan Garner

Article Overview: A look behind the scenes about reporting forgiven or cancelled debt as income and how you could possibly be able to not have to pay by declaring yourself insolvent explained simply and directly by Credit Alliance Group

Hardship Debt Settlement Taxes explained by Credit Alliance Group

A look behind the scenes about reporting forgiven or cancelled debt as income and how you could possibly be able to not have to pay by declaring yourself insolvent.

*Be advised: I am not a tax professional nor do I claim to be one. Any information I disclose is based on my experience and is for informational purposes only. It is always a good idea to seek the help of a qualified professional to prepare your taxes or for any legal advice. You can contact the IRS at (800) 829-1040.

Debt Settlement- A quick snapshot

Hardship Debt Settlement with Credit Alliance Group is an excellent option for those who are struggling month to month to afford their monthly payments. It is an alternative to bankruptcy and can generally save consumers THOUSANDS off of their total unsecured debt amount. Unsecured debts are accounts like credit cards, medical bills, collection accounts, etc. A consumer has to realize what they can realistically afford. Cutting interest checks to your creditors for the next 20-30 years, paying a little above the monthly minimum is just NOT an option. Debt settlement with Credit Alliance Group has established relationships with your creditors and has the negotiating power to knock down those debts and save thousands. However the thousands saved can be considered taxable income.

What most people aren't aware of is that creditors are required to report any forgiven debts that are greater than $600.00 to the IRS on from 1099. This lets the IRS know that you have settled your debt for less than the original amount owed and they will of course want to tax you for the amount forgiven.

Let's not get overly excited and cancel the hardship debt settlement program you just enrolled in, because there is a way to deal with it. The fact of the matter is, is that most of those in a hardship debt settlement program are not responsible for taxes on the forgiven debt. The IRS has a loop hold for debtors who are "insolvent" at the time of debt settlement. The word "insolvent" means that your debts (liabilities) outweigh the value of your income (assets).

Liabilities are things that take money out of your pocket and assets are things that put money back in your pocket.

If you are in a situation where Credit Alliance Group's hardship debt settlement program is necessary you are more than likely "insolvent". Financially speaking you would have a negative net worth, where your liabilities would be much more than your assets.

How does a person know whether or not they are insolvent? Good question...

At the end of each year, you should get a 1099-C form from the creditor with which Credit Alliance Group's Hardship Debt Settlement Company settled the account with. The 1099-C should have a date that your debt was cancelled, and it should match the date that Credit Alliance Group's Hardship Debt Settlement Company sent them the settlement check. The cancellation date is a crucial piece to the puzzle, because that is the date that you have to prove your insolvency. Be sure to list all your assets and liabilities (debts) as they stood on that date. Be sure you use the present market value of your house and cars to determine their present value. Include only the equity you have in your house or car as an asset not any more. You can use housevalues dot comefor your house's market value (equivalent sales) and kbb dot comfor the car's value (private party sale). You can give a best guess estimate of their value at the time of cancellation if you are preparing your taxes after the cancellation date.

If what you owe is more than what you make for that date in time and the amount you are insolvent is more than the forgiven debt amount, then you can report yourself "insolvent" for that settlement. If perhaps you had settled more than one debt, you must repeat these steps for each cancelled debt.

To inform the IRS about your insolvency you must fill out IRS Form 982: Reduction of Tax Attributes Due to Discharge of Indebtness. You should contact the IRS to make sure you have filled out the form correctly. If for some reason you can't prove your "insolvency" then keep in mind that the amount you saved through Credit Alliance Group's Hardship Debt Settlement Program is much less than what you would have ended up paying to the creditor using other routes. Especially if you had continued making the minimum monthly payments, you would have paid about 15 to 20 thousand more in interest alone -depending on your debt amount- than you would have with Credit Alliance Group's Hardship Debt Settlement Program.

Seek a Qualified Professional

We urge that you seek the advice of a tax specialist to ensure your insolvency. I am a Certified Debt Specialist through the International Association of Professional Debt Arbitrators and not a Certified Public Accountant. In matters like these it is always good to seek advice of a qualified tax professional.

In conclusion, you more than likely will not end up owing a tax liability on forgiven debt and Credit Alliance Group's Hardship Debt Settlement option is a great program that does work.

Related Articles
  Is Debt Settlement the RIGHT choice for you?
  Credit Alliance Group is changing the debt settlement industry
  An outlook on the future of Debt Consolidation Companies
  Emotional Economics spelled out by Credit Alliance Group
  How Does Debt Settlement Affect My Credit?

Article Tags: credit, credit card debt, creditalliancegroup, debt, debt settlement, hardship
Referred by: http://www.creditalliancegroup.net



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