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Debt Settlement and Form 982?

I am going through debt settlement and trying to plan accordingly. I am a renter and only own an old Jeep worth roughly $1,000, bank account after I get on the plan will stay around $2,000 and other than that, the car I drive, I’m still paying on so hoping someone can confirm my understanding of the law.
Estimated total debt of cards to be settled: $82,000 (does not include my current car note)
Estimated assets (jeep & bank account): $3,000
Insolvent: $79,000

So if the debt is settled for, lets say 60% of total it would be $49,200, therefore the remaining $32,800 would be reported on a form 1099C.

I would then take that $32,800 and subtract the amount of my “insolvency” of $79,000 and any taxes would be due on any positive difference. However, since my “insolvency” exceeds the “Income”, it is highly likely that no taxes would be due on the income?
1) Am I correct in the above?
2) When calculating “liabilities” for insolvency, do I need to include the amount of my car note?

3) Since I do not have the title for the car, and still paying a car payment, it is not an asset, correct?
4) If the debts are settled independently, as each is settled, the total amount of my liabilities and assets is the liabilities at the time of each settlement, therefore as they are settled, the liability amount will go down?
Granted 5% would be great, but I am planning realistically and from what I have seen 35% to 50% is more typical.
As for the car, so I would add it as an asset but since I am still paying for it, the note would also be added to the liabilities so it basically offsets…. I.E. worth $20,000 but owe $27,000 (bought new but before all H*** broke lose and trouble started)
So Assets would be $23,000 but liabilities would then go to $109,000, so insolvency now goes to $86,000 vs $79,000.
I apologize for adding “additional details” but can not seem to find the “reply”.
My credit already was hit big time due to the debt/income ratio so either way credit sucks but bankruptcy really is not an option for me as from the attorneys I have talked to. Primarily due my line of work… better to put up with bad credit score that will slowly rebuild vs the 7 to 10 yeas of automatic bad credit.
As for the settlement.. yes going through a company but they get nothing until settlements are made. Their fee is 5% of the “savings” and only paid once settlements are reached. No Admin fees / banking fees… the only fee is a one time fee of $150, taken from my first payment for the attorney, which is licensed to practice in my state and I have already talked to him.
The one thing that upsets me about all of this is the fact that if it wasn’t for medical bills and a funeral, I would not be in this state…. Dang.. heart attacks and strokes are expensive, even with insurance…


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2 Responses to "Debt Settlement and Form 982?"

  1. Yirmiyahu says:
    1) You’re correct – you’re insolvent and so no taxes would be owed. Verify with an “enrolled agent”
    2) Yes
    3) Wrong. It is an asset
    4) Yes

    Question: why would you attempt to settle for 60%? It seems like you should be seeking settlement at the 5% level at most.

  2. CatDad says:
    - It sounds like you’re already had enough trouble….”debt settlement/consolidation” firms will probably end up causing even more trouble for you. These firms “work” by having you deliberately default on your debts to try to settle for less. The monthly payment you make goes direct to them to pay their fees and to build a settlement account to hopefully “settle” these debts for less in the future.
    This is a risky tactic. Facts you need to know:
    - People often use these firms thinking that they have some sort of power to force your credit card companies to settle for less….or that only they have the special power to negotiate settlements for less. This is completely untrue. Your credit card companies have no obligation to take any settlement or less from anyone….Many credit card companies hate these outfits and will directly refer your account to their legal department if they find out that you’re using them.
    - In my opinion these debt settlement firms are just predators looking to swoop down like vultures to take money from people at a vulnerable time.
    ***** If you’re going to do debt settlement anyway, then you don’t have to pay any firm to do this for you. You can do this yourself. You don’t have to pay any firm to ruin your credit rating in order to settle for less. You can stop paying on your own and use the money saved to build a settlement account to settle for less in the future. You can make your own settlements by yourself. You don’t need to pay anyone firm thousands of dollars. Your creditors will either take a settlement or they won’t. If they do, get all terms in writing. This firm you are using has no more power than you do to negotiate settlements.
    - Regardless of whether you do this yourself or you continue using this firm, you need to understand that this is a very risky process. The result of it failing will be that your creditors will start serving you summons and take you to court to get judgements against you. This can lead to wage garnishment unless you live in PA, TX, NC, SC.
    ***** You’re not correct about bankruptcy. Filing for Chapter 7 does not ruin your credit rating for 7-10 years. Once debts are discharged you can have a good credit score in as little as 3 years outside of a Chapter 7 discharge. There are some people who like to exaggerate the negative effects of filing for Chapter 7. Of course it should be avoided…but it many cases it can be the best possible move. Do what’s best for you and your family
    ***** As part of this “settlement” process, this firm is going to have you deliberately default on your credit cards. This is called a “charge off,” which is one of the worst things that can happen to your credit rating/score. With a charge off, the damage to your credit is done and latter settling these defaults/charge offs for $49,200 will not magically undo the effects of the charge off. At best, your credit report will get updated to Paid/Settled R9 Charge Off status with a $0 balance…a little better, but you’re STILL going to have very bad credit anyway from the original charge offs and these will stay on your credit report for 7 years from the initial date of default.
    - Strangely enough, your credit rating/score might bounce back faster over time if you do filing for Chapter 7. It just seems to me that $49,200 is a lot of money to pay and still have bad credit anyway.
    - Here is an example of what can go wrong when you use one of these debt settlement companies. I would advise you to read this info very carefully:

    Good luck,
    -What do you mean by “going through debt settlement?” Are you paying one of those debt consolidation firms that promises to cut your debt in half?
    - Are you sure that Chapter 7 bankruptcy is not in your best interest if you qualify to file?
    With charged off/defaulted credit cards, your credit is bad no matter what you do, so after you pay back $49,200 in settlements you’re still going to have bad credit anyway. I’d use Chapter 7 if you qualify to file.

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