Legal Question in Tax Law in Nevada

Forgiveness of debt IS generally considered income.

What an interesting question! I'm surprised it occured to you, but you're right.

How important is it to you to have your credit report cleared, and how likely are the creditors to agree? If you use a bankruptcy court to help you, you could get the agreements but I think the bankruptcy stays on your report, perhaps for 7 years.

By the way, such an agreement might be 'unenforceable' -- in other words, a creditor could tell you they'll do something like that, even in writing, and then after you pay your x%, they might not keep the bargain (meaning they consider you owe the rest and they leave that showing on the credit report) and then your legal recourse would be limited.

You ought probably to at least call a local lawyer, one experienced in bankruptcy, even if you want to avoid bankruptcy -- s/he'll know the law on debt collection better than I do.

Foregiveness of Debt

Under the IRS rules, this kind of foregiveness of debt would be considered income to you, I believe. However, it seems to me that there are exceptions for bankruptcy and/or for insolvency. You may wish to talk with a bankruptcy attorney in your local area and see if he/she has any suggestions. You don't have to declare bankruptcy just because you went to see one of these guys.

Foregiveness of debt

Foregiveness of debt may or not be income. If the discharge or foregiveness occurs while the debtor is insolvent then income is excluded. Insolvency occurs when debts exceed assets. The amount excluded by an insolvent taxpayer is limited to the amount of insolvency. The amount excluded reduces certain tax attributes such as basis in property. Additional, the common law tax benefit rule sometimes supports exclusion of discharge of indebtedness. Under the Code, taxpayers can exclude discharge of indebtedness income to the extent that the payment of the liability would have given rise to a deduction by the debtor.