Law Office of Allan E. Dunaway, PLC

Cancelled debt may still haunt you

When Kentucky residents feel they have fallen into too deep a financial hole to climb out of on their own, they may resort to filing for bankruptcy. Often, chapter 7 bankruptcy is chosen, which liquidates assets to cover debts. But going through this process may not be the end of the story, especially if you have had large amounts of credit card debt forgiven. In the eyes of the IRS, you still owe money.

The IRS considers forgiven credit card debt as income and, therefore, taxable. As such, they may send you a 1099-C cancellation of debt form, which lists what you owe to the taxman. If you settle the debt for at least $600 less than what was originally owed, you will most likely receive this form. You will need to list the forgiven amount on your federal tax return. For example, if you owed $20,000 and you only had to pay $15,000, that $5,000 is now taxable.

Though you may be unfamiliar with the 1099-C, it is not something to simply discard if it comes in the mail. Doing so may constitute fraud, or at least warrant audits and other unpleasant business with the IRS. On the other hand, not all forgiven debts are taxable, so you may want to double check with an expert to make sure you are not paying something you do not owe.

Bankruptcy law can become very confusing, especially when the IRS gets involved. As such, it may be beneficial to speak with an experienced attorney if you are considering this route. 

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For sound bankruptcy advice you can count on, from a skilled lawyer who truly cares about your future, contact the Louisville Law Office of Allan E. Dunaway, PLC. We have two convenient locations: Louisville, Kentucky, and Jeffersonville, Indiana. Our main office in Louisville is located off the beaten path so you won't have to deal with downtown traffic and can pull right up to our door and walk right in.

Call us at 502-785-1005, or send an email message. Our law firm welcomes the opportunity to serve you in any way we can.

If for some reason personal bankruptcy is not for you, if you do not qualify for the Chapter 7 approach via the "means test" and Chapter 13 reorganization is not the answer, Allan E. Dunaway works hard to inform you of other appropriate means of debt settlement that suits your unique needs.

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