Don’t Let 1099-C Threats Stop You From Reclaiming Your Credit!

During the holiday season, collection agencies are always thinking about ways to get you to do what they want — which is pay them, of course. If you’re trying to get out of paying the collection agencies what you owe, you’re going to find that they have a big bag of tricks designed to keep you from doing that. You have to make sure that you keep everything in perspective properly. It can be tempting to not really worry too much, but you are going to have to make some different decisions if you want to be able to take care of your financial life appropriately.

Dealing with the collection agencies can be tricky. If they are dropping your debts in a charge-off, you’re going to still be paying in the end. What we mean by this is that it’s quite possible to end up paying a lot of money to the company and still be on the hook for the amount that you didn’t settle for.

An example is in order — let’s say that you have a 10,000$ debt. You settle for about 4000, paid out over a 12 month payment plan. You might think that after all of your money is received that all will be well, right? Well, not quite — you see, the $6,000 dollars that you didn’t pay doesn’t just go up in smoke. The collection agency will often still file a 1099-C notice with the IRS, and that will be considered income.

Now if you don’t make much money as it is, chances are good that an extra $6,000 in income on your taxes isn’t going to make you a happy camper — especially when you don’t get to enjoy the money. However, the current tax laws indicate that it is income, so you will need to declare it. This is the fastest way to get audited if you’re not careful. You always want to report all of the debts that you are charged off, because the IRS will make sure that you do and you pay the taxes required. It’s always a matter of money, you know.

Yet we’re saying that the 1099-C isn’t anything to fear, really. Let’s flip it around here — say that they do go ahead and do this to you. It’s not the end of the world because guess what — your life sucks one tax year and then it’s over. You can always make a payment plan with the IRS if you really needed to, and that can keep things running smoothly for you in the future.

There are also exceptions to the 1099-C — like if you were considered insolvent at the time the taxes were filed. Insolvency means that you really didn’t have the money to pay the full amount. If your liabilities outweigh your assets, you can often make a good case for this. However, it’s easier sometimes to just skip the extra paperwork and pay what is owed than fight the IRS — you will almost always need representation to win a case, and this can get expensive in a hurry.

Now is the right time to take care of your finances and continue to raise your credit score over time. Why not start today? It’s going to be difficult at first, but when you see your financial life improving, you’ll totally be glad that you took the steps to change your life for the better! There’s nothing more satisfying than seeing your life rise higher and higher — so don’t delay, of course!