Tax Questions

[BEN52]

Hello,

I have a two part question regarding debt settlement and taxes. In 2023 I finally reached the tipping point with debt and confronted the issue. I attempted a chapter 7 filing which was ultimately unsuccesful. I then settled a significant amount of debt in the following amounts:

Chase Bank: $6,500 settled for $2,087

Chase Bank: $8,000 settled for $2,871

Chase Bank: $2,100 settled for $500

Sofi Loan 1: $29,234 settled for $7,306

Sofi Loan 2: $11,422 settled for $2,855

Citi Bank: $1,800 settled for $700

The only 1099 C's that I have recieved so far are from Chase for the two larger settlements. I am of the understanding that the smaller Chase settlement will not generate a 1099 because it is under $600. So my questions are as follows,

1. Am I obligated to still report the other forgiven debt on my 2023 return or should I wait until recieve a 1099 C to do so? I have everything else done for my taxes and would like to file.

2. Regarding IRS form 982 and insolvency, the form states "discharge of indebtetness to the extent insolvent". What defines insolvent? At the time the debt was forgiven, my liabilities exceeded my liquid assetts on hand. I had zero savings to speak of, my vehicles were and are breakeven to slightly underwater, and I have no other liquid assets to speak of. I do have equity in my home and I do have a retirement plan however I cannot access the retirement funds and I do need a place to live. What exactly is the definition of insolvency and what is the burden of proof? 

Thank You

[pizzadude]

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@BEN52 wrote:

Hello,

I have a two part question regarding debt settlement and taxes. In 2023 I finally reached the tipping point with debt and confronted the issue. I attempted a chapter 7 filing which was ultimately unsuccesful. I then settled a significant amount of debt in the following amounts:

Chase Bank: $6,500 settled for $2,087

Chase Bank: $8,000 settled for $2,871

Chase Bank: $2,100 settled for $500

Sofi Loan 1: $29,234 settled for $7,306

Sofi Loan 2: $11,422 settled for $2,855

Citi Bank: $1,800 settled for $700

The only 1099 C's that I have recieved so far are from Chase for the two larger settlements. I am of the understanding that the smaller Chase settlement will not generate a 1099 because it is under $600. So my questions are as follows,

1. Am I obligated to still report the other forgiven debt on my 2023 return or should I wait until recieve a 1099 C to do so? I have everything else done for my taxes and would like to file.

2. Regarding IRS form 982 and insolvency, the form states "discharge of indebtetness to the extent insolvent". What defines insolvent? At the time the debt was forgiven, my liabilities exceeded my liquid assetts on hand. I had zero savings to speak of, my vehicles were and are breakeven to slightly underwater, and I have no other liquid assets to speak of. I do have equity in my home and I do have a retirement plan however I cannot access the retirement funds and I do need a place to live. What exactly is the definition of insolvency and what is the burden of proof? 

Thank You

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First let me state that I'm not an accountant or CPA so you should seek input on this from someone qualified to give you solid advice, especially on the topic of insolvency. 

Second, I believe that the 1099-C is sent for the amount of debt that the Creditor cancelled, not the amount you paid.   So I'd expect to get a third 1099 from Chase in the amount of $1,600 ( out of the $2,100 balance you paid $500 they cancelled $1,600 ).

If it were me, I'd wait until I had all of the 1099s before filing - given that today is Feb 5th I'd bet that you'll receive a few more of these in the next few weeks / months. 

[mcclj74]

I have a random question - did you settle Sofi internally or did it get sold to a 3rd party first? If a 3rd party - who did they sell to? I am 70 days past due right now and trying to figure out my options. Thanks!