Will I owe money to the IRS for my reduced debt amount? The IRS permits consumers to write off any “income” from canceled debts up to the amount by which they were “insolvent” at the time. Therefore, unless you have a positive net worth you ordinarily are not obligated to pay taxes on forgiven debt amounts. Additionally, if you do not qualify as insolvent, non-principal amounts such as fees accumulated on the account may be deducted from the amount reported. Consult your personal tax advisor for advice specific to your tax situation. Visit IRS.gov for more information.
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