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If I settle a debt, is the savings considered “income” for tax purposes?

When your creditor settles your debt, a savings of $600 or more off what you owed may be reported by your creditor to the IRS as Discharge of Indebtedness income. Information on tax ramifications to you personally you may also wish to consult a CPA or Tax Attorney and to refer to the IRS website www.irs.gov IRS Publication 908- “Bankruptcy Tax Guide” and IRS Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness available on the IRS website.

Most payday loan settlements do not result in tax consequences because the loan amounts are generally low.  However, you should consult your tax advisor for information specific to your own personal situation.

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This web site is for informational purposes only. It is not intended to provide legal advice or be a substitute for legal advice. We try to provide quality information,but we make no claims, promises or guarantees about the accuracy, completeness, or adequacy of the information contained on this web site or the results that you may achieve when you use our services. The debt settlement process should only be used in the event of legitimate financial hardship. If you have sufficient income to reduce your debt load the ordinary way (by reducing the balances with payments in excess of the minimums), then you should definitely do so.