How to ruin a good debt settlement offer

Published: June 11, 2008, 3:13 pm

Tags: articles resources, agreement, bad advice, cancellation of debt, ceo, clause, collections, creditor, debt, debt negotiation and settlement, debt settlement, debtor, debts, disputes, dodgy, exact language, fancy footwork, fix, form 1099, income, income tax return, income taxes

By Charles Phelan, ZipDebt CEO People keep trying to reinvent the wheel when it comes to debt negotiation and settlement. It's not rocket science, and there are really only a few simple principles that need to be followed to avoid problems. It's the fancy footwork and dodgy tactics that cause all the trouble. Here's a good example. Recently, I've been asked by several people about a recommendation they came across on the Internet regarding debt settlement letters. I have not yet been able to locate the source of this spectacularly bad advice, so I don't know the exact language of the recommendation. But the basic idea is that a special clause be added to the settlement letter with the aim of avoiding income taxes on the cancelled debt. A little background first. When a creditor forgives or cancels a debt, and the portion forgiven is $600 or greater, the creditor is required to report that to the IRS on Form 1099-C, Cancellation of Debt. This amount must be claimed as

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