Legal Question in Bankruptcy in Illinois

I would like to settle my credit card debt with the credit card company or set up some kind of repayment plan however I heard about �phantom income� that will affect your taxes? How does this work and how much will I have to pay?


Asked on 3/17/10, 7:07 pm

1 Answer from Attorneys
David Labovitz Labovitz Law Firm, P.A.

Hi. If part of your balance is written off when you settle for a lower amount than the amount actually due, and the amount is greater than $600, the creditor must report it and issue you a 1099. You will end up reporting that amount on your tax return as income and will pay income tax on it at your current tax rate. However, as an exception to that rule, if you meet the insolvency test, meaning you have a negative net worth, then you do not pay taxes on cancelled debt.

Read more
Answered on 3/22/10, 7:21 pm


Related Questions & Answers

More Bankruptcy Law questions and answers in Illinois