This was a great question I think a lot of us will learn from:
I lost my job 12-31-08 with my income greatly reduced I fell behind on some loans auto and credit cards I was told by two different companies that my failure to pay these loans would result with them sending a 1099 to the irs as well as me indicating that loans were taxable income. can they legally do this and is it actually reportable income?
The answer is yes it is legal and no one tells anyone about this until they get the 1099. When you are negotiating your reduction on your loans and credit cards you think great I have just paid off for less than I owed. But, wham! now you owe taxes on the amount you did not pay and for someone that is already in financial straits this can put you over the top.
Again this a good time to visit your tax planner before you make these choices to see how it is going to affect your entire financial picture.
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