Guide

The discount with a tax bill inside it

When a creditor or collector cancels $600 or more of a balance, the IRS generally counts the forgiven amount as income to you (Internal Revenue Code §6050P). The creditor reports it on Form 1099-C. A 'half off' arrangement on a $10,000 balance can arrive the following January as roughly $5,000 of surprise taxable income.

Run the real math before accepting: what you pay, plus the tax on what is forgiven (forgiven amount × your marginal bracket), is the true cost — and compare it honestly against your other options, including doing nothing on a time-barred debt, where the true cost can be zero. The kit's offer-math worksheet does this arithmetic with the tax line included.

The insolvency exception: if you owed more than you owned (counting everything, including the debt itself) right before the cancellation, the forgiven amount can be excluded up to the insolvency amount — claimed on Form 982 with your return. It is a real, commonly missed exception. A tax preparer can confirm your figures; the exception is arithmetic, not advocacy.

Get it in writing first: any agreement should state the amount accepted as payment in full, that the balance will be reported as resolved, and that the account will not be resold. A discount without paper is a story you will have to prove later.

Included in the $39 DebtDecoded Kit

  • The letter builder — answer a few questions and it writes your letters: the one that makes them prove the debt is yours, and the one that orders them to stop calling. Wording follows the federal rulebook (Regulation F). Ready to print and mail
  • The old-debt trap worksheet — checks your dates against your state's restart rule before you pay or sign anything, so one small payment can't quietly restart the clock on an old debt (the trap lawyers call 'revival')
  • The call log — counts their calls against the legal line: more than 7 calls in 7 days about one debt counts as harassment (12 CFR 1006.14(b)(2))
  • The 'what they can't take' pack — what a court judgment can and cannot take in your state, including the rule that shields two months of federal benefits sitting in your bank account (31 CFR Part 212)
  • The offer-math worksheet — what a 'deal' really costs once fees and the tax on the written-off part are counted (that tax shows up on Form 1099-C)
  • The complaint walkthrough and the honest directory — who to call instead when a free or better route fits you

One payment. Every stage of the road, and the deadline tables for all 50 states — every number with its law cited. No account, no subscription — and the free checker above stays free whether you buy or not.

Get the Kit — $39

DebtDecoded is education, not a law firm. If the checker points you to a free route — legal aid, a lawyer who fights debt collectors, a nonprofit counselor — take it. We would rather lose the sale than sell you the wrong tool.

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