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I accepted an offer from a credit card company to settle my debt with them for about 50% of what I owed. I thought that would be the end of it, but then I received a form for “debt forgiveness” which was also sent to the IRS, and because of which I had to claim an additional 10K as income which I did not have, never would have. I am having to pay taxes on money I never had! So how am I in better shape using a credit negotiation company if I end up with a large amount of debt “forgiven” which I then cannot even afford to pay taxes on?

Your are correct in that when you use a credit negotiation (debt settlement) company or if you are lucky enough to secure your own settlement with the credit card companies, you will be required to pay tax to the IRS on the savings. It’s one of those rediculous IRS policies that hopefully will be changed as more people are having to settle debts in this poor economy.

The estimated amount you will need to pay the IRS should be budgeted in your monthly payments set up by the credit negotiation company you use (if you needed one). The money that is stashed away for negotiations would include that money due to the IRS.

Yes, this is an important factor to consider in finding a debt relief solution. A reputable company should be very upfront about this and let you know about the tax policy upfront.