Tax Issues with Credit Card Settlements

Be careful if you settle any credit card debts before filing bankruptcy because you may convert a debt that is dischargeable in bankruptcy into a non-dischargeable debt. Generally, a creditor is required to issue IRS Form 1099-C to a debtor for any debts forgiven greater than $600.  What does this mean in bankruptcy? Settling a debt before filing for bankruptcy potentially transmutates a dischargeable unsecured debt into a non-dischargeable tax debt. Credit card debt is generally unsecured and is dischargeable in bankruptcy. However, forgiven debt becomes income which is subject to income taxes, and tax debts less than 3-years old are generally not dischargeable in bankruptcy...

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