Beware When Accepting a Debt Settlement Offer

On May 18, 2015, in Debt settlement, by John A. Weber IV, ESQ.

Forgiven debt may be taxable by the IRS!

The Second Circuit has ruled that debt collectors don’t need to warn clients of the potential tax liabilities associated when making a settlement offer for less than the full amount owed.

In Isaac Altman v. J.C. Christensen & Associates Inc., docket number 14-2240, the U.S. Court of Appeals for the Second Circuit stated in it’s opinion that the “fact that a debtor may then have to pay tax on the amount saved is simply not deceptive…”

Isaac Altman received a letter from J.C. Christensen & Associates stating that he could save up to 50 percent on his $6,000 debt if he made a payment upfront. Altman alleged the letter was deceptive violated the FDCPA’s prohibition against false, deceptive, or misleading representations. As stated above, the Court was not convinced.

So, you may want to consult your accountant/tax preparer before accepting a debt settlement offer. Additionally, you generally won’t have this tax issue if you file for chapter 7 bankruptcy. Therefore, it may be in your best interest to also consult a bankruptcy attorney.

The Law Firm of Vaughn & Weber, PLLC

393 Jericho Turnpike, Suite #208 Mineola, NY 11501

Mineola, NY 11501


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