debt consolidation for seniors

[mike stevens]

What is the name of your state? indiana, my mother, who is 80 years old, is on a fixed income and has found her self in a situation which i believe debt consolidation will help her take care of her financial liabilities without filing bankruptcy. recently an article ran in the south bend tribune stating beware of the possibility of the companies included in debt consolidation sending out 1099's. her fixed income is social security and a check from the veterans administration, aprox $1700. is this true for seniors, will they have to pay taxes on the amount they do not pay to creditors under a debt consolidation program?

Mike (florida)

[LdiJ]

Originally Posted by mike stevens

What is the name of your state? indiana, my mother, who is 80 years old, is on a fixed income and has found her self in a situation which i believe debt consolidation will help her take care of her financial liabilities without filing bankruptcy. recently an article ran in the south bend tribune stating beware of the possibility of the companies included in debt consolidation sending out 1099's. her fixed income is social security and a check from the veterans administration, aprox $1700. is this true for seniors, will they have to pay taxes on the amount they do not pay to creditors under a debt consolidation program?

Mike (florida)

Seniors are treated no differently than anyone else. Its possible that a Chapter 13 bankruptcy, which is similar to debt consolidation, may be more in order for your mother.

[abezon]

Debt consolidation means taking out 1 big loan to pay off all little loans, then making just 1 payment monthly. Since the previous creditors are paid in full, there is no inocme from consolidating.

There are also debt settlement plans where you negotiate a reduced payment with the creditor (50-80% usually). Settlements are usually paid in a lump sum. The settlement discount is income reportable on a 1099-C. [IRC sec. 61(a)(12)] Thus, it is income & Mom will have to pay income taxes on it unless she settles the debts as part of a bankruptcy case, or is insolvent when the debts are settled. [IRC sec 108(a)(1)(B)] To prove insolvency, she has to file Form 982 with her tax return, & reports the 1099-C income on line 21, then reports a negative income in the same amount as "Debt Forgiveness While Insolvent." These net to $0.

Presumably you are talking about combining the 2 methods. If Mom does this, get a copy of Form 982 now & look at what kind of information it requires you to provide & make sure she qualifies to exclude debt forgiveness income. [url]http://www.irs.gov/pub/irs-pdf/f982.pdf[/url] Otherwise, be sure to reduce the settlement offer to account for the tax bite that will hit in April.