Considering BK...1099 implications

[adventurer]

I have read that any debt forgiven over $600 CAN generate a 1099 to the IRS as 'income'.

Is this generally done:

1) by cc' co's ?

2) banks (for a deficiency judgement on property)?

If yes, what are the implications of the IRS taxes due from this 'phantom' 1099income?

[HHM]

You will also get a copy of the 1099.

If the debt is Forgiven (i.e. you reach some settlement with the creditor whereby you pay some amount to the creditor and the creditor forgives the remaining balance, e.g. you owe $6,000, creditor accepts $1,500 in settlement, you will get 1099'ed on $4,500), then yes, the amount of the forgiven debt is treated as "income" if its over $600 and is taxed at the requisite scale. Thus, if your total forgiven debt is $60,000, you will have to pay income tax on that $60,000.

However, if its available to you (but based on your various illiquid assets, it may not be), you can get around the "forgiven debt" income tax if you can qualify as "insolvent" under the IRS guidelines.