I’ve Been Settling My Debt and I’m Worried I Might Get a 1099-C

Question:

Dear Steve,

In 2013 I bought a house, which was wonderful but financially straining. I was living a very frugal life and getting by ok. In 2016, however, a situation happened at work where I ended up working extensive overtime hours for months at a time (without extra pay because I am salary) and it took a toll on my physical and mental health.

This led to a downward spiral of living less frugally and creating a “head in the sand” situation for me since my only focus was on catching up with my work.

During this time, I fell behind on pretty much all of my unsecured debt and was unable to catch up before things went to collections since the minimum amount owed kept growing each month that I missed a payment.

I’ve been on payment plans with the collectors and am now in a position to start settling accounts one by one, but I wasn’t sure how this would affect my taxes.

I have settled debts with three different collectors this year to close out some of my debts and move on with my life. The amount I “saved” for each debt was under $600 but the total amount is over $600. Will I receive a 1099-C?

Sincerely,

Elizabeth

Answer:

Dear Elizabeth,

The trigger for a 1099-C is not the cumulative amount of debt forgiven but how much per creditor.

I’d love to know how much each of these debts was before you settled them and saved less than $600 per creditor.

Can you please give me some feedback in the comments below?

Steve Rhode
Get Out of Debt GuyTwitter, G+, Facebook

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This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.