quick debt question

[bonnie&clyde]

if you take out a loan at a bank and go into default and they report you to the credit agency can they report that to the IRS as money received?

ex. you make 30k a year, you ask for a 6k loan you default on it and cant pay it and the bank reports it to the IRS making your annual income 36k, is that legal??

[racrguy]

Not that I've ever heard of.

[BlackGT]

Don't think so. It's borrowed money, and should stay as borrowed money even if you default....

[Crownline79]

Maybe after a chapter 7 filing... ?

[Vertnut]

I think if you flat-out default, that's income you didn't pay taxes on. Regardless, they have the "right" to report to the IRS, just like any bank can. If you declare bankruptcy, you're protected.

[71chevellejohn]

According to the bankruptcy lawyer commercials I've seen, it can be considered taxable income if you file bankruptcy.

[Bassics]

if you take out a loan at a bank and go into default and they report you to the credit agency can they report that to the IRS as money received?

ex. you make 30k a year, you ask for a 6k loan you default on it and cant pay it and the bank reports it to the IRS making your annual income 36k, is that legal??

If they forgive any amount they will file a 1099c on you telling the IRS how much they "gave" you. That amount is then considered income to you by the IRS, because it was a loss to someone else.

It is almost identical to winning a $10k payout in a bracket race. The promoter writes you a check for 10k but also files a 1099c telling the IRS you got 10k of income. You are stuck with taxes.

In most cases it works for everyone, but if someone forgives you a debt and writes that debt off as a loss, guess what; you are stuck with a capital gain.

[sc281]

If they forgive any amount they will file a 1099c on you telling the IRS how much they "gave" you. That amount is then considered income to you by the IRS, because it was a loss to someone else.

It is almost identical to winning a $10k payout in a bracket race. The promoter writes you a check for 10k but also files a 1099c telling the IRS you got 10k of income. You are stuck with taxes.

In most cases it works for everyone, but if someone forgives you a debt and writes that debt off as a loss, guess what; you are stuck with a capital gain.

This.


Please don't take a loan out in bad faith.

[Chili]

If they forgive any amount they will file a 1099c on you telling the IRS how much they "gave" you. That amount is then considered income to you by the IRS, because it was a loss to someone else.

It is almost identical to winning a $10k payout in a bracket race. The promoter writes you a check for 10k but also files a 1099c telling the IRS you got 10k of income. You are stuck with taxes.

In most cases it works for everyone, but if someone forgives you a debt and writes that debt off as a loss, guess what; you are stuck with a capital gain.

Yes, this..

[bonnie&clyde]

Is this something new??

[Roscoe]

Is this something new??

No.

Pay your debts.

[quikag]

Lol.

[Chili]

Is this something new??

No, but as mentioned, relates primarily to when debt is forgiven, not just uncollected. In other words, if you agree to a settlement on the debt, you would get hit with a 1099 on anything they write off.

Example: You owe $5k but settle for $2k, you should get a 1099 for $3k and you have to pay taxes on that.

[quikag]

Yep, so if you got a 1099C or whatever, it means they probably wrote off/discharged the debt. Your credit is going to be total crap now and you will have to pay tax on the amount they wrote off. You'll probably have to deal with debt collectors too as I'm sure they'll sell the debt for pennies on the dollar to a shady debt collection agency.

Have fun.

[GrayStangGT]

The IRS is good for something every now and then.

We had an employee steal around $2500 in fuel over a weekend with his fuel card and disappear. Cops didn't care, so we just sent him a 1099 for the $2500 so he would have to pay tax on it. The genius sent us a letter with his new address requesting his W-2, I wish I could have seen the look on his face when he opened it and found the 1099 along with it.