Tax Question re: Forgiveness of Debt

Factual Questions
1

If a collection agency (not the original creditor) settles a debt for less than the full amount, can/must they send a 1099 or does only the original creditor do that?

Does it matter how old the debt is?

Thanks in advance…

2

I’ll use my one bumpity-bump and see if anyone knows…

3

IANAtaxprofessional, but I have have made a couple of the kind of deals, and never have they sent me any 1099. 1099s are probably required only for employers, and they don’t count as an employer.

But now that you mention it, I do suppose it is income, and I gues I should have included it in my income.

4
5

Thanks for the link. I understand that if a bank forgives your debt, you will get a 1099, but in your link, I’m not seeing a collection agency mentioned. Is it treated the same?

6

I will point out that forgiveness of debt is not always taxable. If you are bankrupt it is not, and usually if you are insolvent.

A lot of dudes are insolvent.

7

  1. Many collection agencies don’t own the debt. If that’s the case, the original creditor would have to file if they met the criteria.

  2. It doesn’t appear to me that a collection agency meets the reporting criteria. But I’m not a tax expert.

  3. You might find this helpful http://74.125.45.132/search?q=cache:wkXoWXEV0DoJ:www.lsnv.org/Debt_Cancellation_Vignette.doc+collection+agency+cancellation+of+debt&cd=1&hl=en&ct=clnk&gl=us&client=firefox-a

8

Thanks again. Due to the latest downturn in the housing market, I am definitely insolvent. I never thought that would be a good thing.