Hello all!
I am wondering if anyone on here has experience with 1099-C forms. I have settled a few debts this year and I am expecting some 1099-Cs to come in next year. From everything I have read online, it seems like you don't actually have to pay taxes if you still have more debt than you have assets. I have student loans and a recent car loan, which substantially outweighs my assets. How does this work if you file jointly? My husband has a retirement account worth about $75k. Would this affect cancelled debt forms sent to me if we file jointly? What was your experience with these when you have filed your taxes? Thanks in advance for sharing your experiences!
Thanks for responding! These are the debts I have settled:
1. Chase $9,500, settled for $1,250 with a collection agency (not a debt buyer). $8,250 forgiven.
2. Citi $4,841, settled for $2,033 with a collection agency (not a debt buyer). $2,808 forgiven.
3. USAA $5,514, settled for $2,481 with a collection agency (not a debt buyer). $3,033 forgiven.
In total, that’s about $14,091 forgiven. My student loans are about $38k and I don’t have any savings or other assets right now. I am settling debts instead of going through a chapter 13. I may end up settling 1 more debt this year. My annual income is $110k. I haven’t been able to get any concrete info on the insolvency rule, so any info you can provide would be very helpful.
1. Chase $9,500, settled for $1,250 with a collection agency (not a debt buyer). $8,250 forgiven.
2. Citi $4,841, settled for $2,033 with a collection agency (not a debt buyer). $2,808 forgiven.
3. USAA $5,514, settled for $2,481 with a collection agency (not a debt buyer). $3,033 forgiven.
In total, that’s about $14,091 forgiven. My student loans are about $38k and I don’t have any savings or other assets right now. I am settling debts instead of going through a chapter 13. I may end up settling 1 more debt this year. My annual income is $110k. I haven’t been able to get any concrete info on the insolvency rule, so any info you can provide would be very helpful.
I searched again and came across and IRS form on this issue. I’m going to sit down and do the insolvency worksheet (I’m linking the PDF below). It appears I shouldn’t have to pay anything based on the math. I want to share this in case anyone else needs help!
https://www.irs.gov/pub/irs-pdf/p4681.pdf
https://www.irs.gov/pub/irs-pdf/p4681.pdf
Hard to argue insolvent making over 100k.
How much does your spouse make?
What was your effective tax rate last year?
No, $110k a year is not a typo. Nor does it preclude one from being financially insolvent (which means more debt than assets, according to the IRS). You could be insolvent if you owe more on your house than it’s worth or if you are underwater in a car loan without other assets outweighing it. Or in my situation, where I have credit card debt, student loans, and a lack of savings. My husband also has student loans and other debt as well. I think it would be interesting for other MF members to go through this worksheet and see where they are with their finances.