Thrifty Spending Issue 65

FEATURE ARTICLE: Forgiven debt such as credit card settlements can trigger a tax bill

Getting a tax bill after you’ve gone through foreclosure is like having a bucket of ice water poured over your head after someone has made off with your pants. You’ve lost your home and probably don’t have much money, so why would you owe the IRS anything?

Here’s why: The IRS treats forgiven or canceled debt as taxable income.

For example, suppose you owe $400,000 on a home that goes into foreclosure, the bank sells it for $300,00 and writes off the rest of your loan. Under the tax code, the $100,000 in forgiven debt is taxable income.

In 2007, Congress enacted legislation that excludes up to $2 million in forgiven mortgage debt from taxes, as long as the loan was used to buy or improve the taxpayer’s primary residence. That means most people who lost their homes to foreclosure last year won’t have to pay taxes on the canceled debt, says Robin Christian, tax analyst for Thomson Reuters.

There are limits, though, to this relief. The exclusion is scheduled to expire at the end of 2012, which means homeowners who are starting to fall behind on their payments could face a nasty tax surprise in 2013. And individuals who have had other types of debts forgiven by their lenders could be in trouble right now.

Financial institutions that write off debt of $600 or more are required to send a Form 1099-C to the borrower and the IRS.

If you receive a 1099-C for debt that was forgiven as a result of a foreclosure, you need to inform the IRS that it qualifies for the exclusion, Christian says. To do this, fill out Form 982 on your Form 1040 and check Part I, box 1E.

Otherwise, the IRS may treat your forgiven debt as taxable income.

And there’s plenty of forgiven debt that falls into that category, including:

• Credit card debt. In recent years, some borrowers who have no chance of paying off their credit card debts have persuaded their lenders to settle for a reduced amount. These agreements could put an end to calls from collection agencies, but they could be replaced by calls from the IRS.

• Student loans. Getting a student lender to write off some of your debt is extremely difficult, but should you succeed, the amount of forgiven debt may be taxable, says Gil Charney, principal tax researcher for H&R Block’s Tax Institute. However, there’s an important exception: If your debt was forgiven because you worked for a specific number of years in your profession, it probably isn’t taxable, he says. For example, doctors who agree to work in rural areas in exchange for loan forgiveness don’t have to pay taxes on the canceled debt, Charney says.

To find out whether you’re eligible for this exclusion, read the provisions of your loan or talk to your lender.

• Mortgage debt from a second home. If you lose a vacation home or rental property to foreclosure, any forgiven debt is taxable, Charney says.

• A second mortgage or home equity line of credit that wasn’t used to improve your home. If you took out a home equity line of credit to update your kitchen, forgiven debt on that loan is excluded from tax, Charney says. However, a home equity line of credit that was used to pay for a vacation or child’s college tuition doesn’t qualify for the exclusion.

And remember, the exclusion for mortgage debt will expire at the end of 2012, unless Congress votes to extend it. Since foreclosures can sometimes drag out for months, homeowners who are facing the loss of their homes may want to take steps to complete the deal before the end of 2012, Charney says.

Other exceptions

Even if your forgiven debt doesn’t qualify for an exclusion, taxes aren’t inevitable. Individuals facing tax bills on forgiven debt have two options:

• File for bankruptcy. Debt that’s canceled as the result of bankruptcy proceedings isn’t taxable, Charney says.

• Prove insolvency. The IRS will reduce or eliminate taxes on forgiven debts if you can demonstrate that you’re insolvent. To do this, though, you must convince the IRS that your debts exceed the fair market value of everything you own.

If all you own is a car and a savings account, proving insolvency may be straightforward, Christian says.

But if you’re like most families, you own other assets, such as retirement savings, jewelry and life insurance policies.

“It’s not an easy calculation,” Christian says. “Someone who thinks they are insolvent ought to contact a professional.”

By Sandra Block @

MONEY SAVING TIP: Non grocery store items are more costly at a grocery store. Make a separate list to purchase non-grocery items, such as painkillers, contact lens solution, etc., at a drug or discount store; most likely, there is one close to the grocery store.

DID YOU KNOW… that if you want to lease a car or get out of one, there’s a website that will assist you? will guide you through the entire process. Just choose a package that fits your needs and the rest is easy.

Get Out of Debt

Getting out of debt is a great concern for Americans today. Those who suffer from extreme debt often feel like there is no way out of their situation, but the reality is that with careful planning even those in the direst circumstances can look forward to a debt-free tomorrow. There are many different options for people who find themselves with more debt than they can handle.

Budgeting and Self-help

In many cases, consumers can actually get out of debt on their own. It takes planning, hard work and dedication.

The first thing you need to do is design a realistic, workable spending plan. Debt Management Credit Counseling Corp. can help you design your budget with our free budget analysis. A certified financial counselor will help you analyze your income and expenditures to see where you can cut your expenses in order to get out of debt. This service is absolutely free. Please contact DMCC at 1-866-618-DEBT to speak to a member of our staff.

Debt Consolidation and Debt Management Plans

In the past couple of years, there has been a lot of talk about debt consolidation and what it can really do for indebted consumers. A debt consolidation company usually receives payments from a debtor and distributes the funds to the various creditors. This way the debtor only has to write one check a month, but still satisfies all of his creditors. DMCC offers a debt management plan (DMP) that combines debt consolidation of unsecured debt with reduced interest rates, lower monthly payments, and the elimination of fees from your creditors. Our certified financial counselors will assist you in designing a debt management plan that fits your specific situation. DMCC also offers a variety of free educational information and a financial literacy program that will help you gain the skills you need to make smart financial decisions. Please contact DMCC at 1-866-618-DEBT to find out how our program can help you get out of debt.

Debt Consolidation Loans

With a debt consolidation loan, a lender will give you a loan for an amount that will pay for all of your unsecured debt. The loan may or may not have a lower interest rate than what you were paying to all of your individual creditors. Although DMCC does not offer debt consolidation loans, we can help you find the right way to get out of debt. If our DMP is not your best option, our certified financial counselors will help you find someone who can help. Call DMCC today at 1-866-618-DEBT for more information about your options to get out of debt.

Debt Settlements

A debt settlement program involves hiring an attorney or company to negotiate with your creditors a reduction in your overall debt. Successful debt settlement programs result in you owing only a portion of your original debt. However, this settled amount usually must be paid in one lump sum payment. Debt settlements can also hurt your credit history and subsequently your credit score. Unless otherwise negotiated, settled accounts are not considered “paid in full.” The negative information will stay on your credit report for 7 years. DMCC can help you analyze your financial situation to find out if a debt settlement is right for you. We can also help you identify a reputable debt settlement attorney or company. Call us at 1-866-618-DEBT for more information.


People who face severe debt delinquency may consider bankruptcy as a viable option. All collection activity will cease from the time an attorney represents a client or when the initial bankruptcy papers have been filed. Bankruptcy is a serious decision. DMCC can help you decide if bankruptcy is the right option for you and may be able to offer you alternatives to avoid it. Call us at 1-866-618-DEBT to speak to a certified financial counselor about your situation. We strongly recommend that you also speak with a bankruptcy attorney if you are considering this option.

Winter/Spring 2011

10 Things you can do to avoid fraud International scam artists use clever schemes to defraud millions of people across the globe each year, threatening financial security and generating substantial profits for criminal organizations and common crooks. They use phone, email, postal mail, and the Internet to cross geographic boundaries and trick victims into sending money or giving out personal information. While con artists can be clever, many can be foiled by knowledgeable — and equally canny — consumers. Here are 10 things you can do to stop a scam. READ MORE

Could free trial offers be ‘fee’ trial offers in disguise? Free trial offers can be an efficient way to sample a new product or service without paying for a membership, subscription or extended service contract. Sometimes, though, if you accept a free trial offer and don’t cancel on time or according to the stated policy, you may be unintentionally agreeing to a contract to buy additional products and services. READ MORE

Understand the risks and costs of borrowing with a reverse mortgage A reverse mortgage is essentially a loan against your home that you do not have to pay back for as long as you live there. It allows homeowners age 62 or older to borrow cash from the equity in their homes without having to make monthly payments. A reverse mortgage is often advertised as a great source of easy money for older homeowners to supplement their income, pay healthcare expenses or use the money as they please. But as FDIC Consumer News has reported in the past, while there are potential benefits to a reverse mortgage, it may not be the best option for everyone. With the number of potential borrowers growing with the aging population, it’s important that homeowners fully understand the risks involved. Here are our latest tips. READ MORE

Client’s Corner: Click HERE to read important information regarding your account.

Ask DMCC: In each newsletter, DMCC will answer a question from one of our clients. If you have a specific question you would like answered, you can submit it to Click HERE to read the latest question submitted by one of our readers.

Letter from The Executive

Mission Statement/IRS Treatment of Client Payments to DMCC/Disclosure



Thrifty Spending Issue 64

FEATURE ARTICLE: Wells Fargo, Chase, SunTrust cancel debit rewards program.

Wells Fargo said Friday that it will no longer offer its debit rewards program for new customers. This will go into effect March 27 at Wachovia and April 15 at Wells Fargo, while existing customers will remain unaffected for the time being.

JPMorgan Chase notified existing customers last week that their debit rewards programs will disappear July 19. The bank eliminated debit rewards for new customers in February.

Citi hasn’t made any changes yet, but said it is “in the process of evaluating potential changes to our rewards programs.”

SunTrust, a large regional bank, has also followed suit. The bank will no longer award points to customers beginning April 15, and the points that existing customers have racked up will expire Jan. 1, 2012.

Debit rewards are awarded to customers for actions like spending, carrying high balances and making minimum deposits. Customers can then redeem the points they collect for cash or gift cards or even electronics.

And these rewards programs are the newest target in the heated battle between banks and the Federal Reserve over a proposed rule that would limit “swipe fees” — or the amount retailers must pay the bank every time customers use their debit cards.

The 8 least evil banks

Financial institutions have already hiked ATM fees and threatened to impose debit card spending limits in response to the Fed’s proposed cap, claiming that they are now forced to find revenue in other areas.

So axing debit rewards programs is just one more way banks are hoping to recoup revenue they expect to lose. Or, they may be hoping to get consumers so riled up that the Fed thinks twice about imposing the new rules, said Curtis Arnold, founder of

“Debit rewards are so popular with customers and these days it’s something they expect to see when they sign up for a debit card, so they risk losing customers and won’t have the same customer loyalty,” said Arnold. “Maybe what they’re hoping will happen is there will be a consumer backlash that results in changes to the regulation, so that scrapping debit rewards can just be a temporary thing.”

Credit cards from hell

But until the Fed surrenders, Arnold said consumers are likely to see more banks slash debit rewards altogether or trim down the rewards they offer.

“The industry typically has a monkey see, monkey do mentality, so now that two major issuers have announced it, I can’t help but think we’ll see the others follow suit,” said Arnold.

Representatives at Bank of America and TD Bank said no changes have been made to their debit rewards programs yet.

U.S. Bank and PNC Bank representatives did not respond to requests for comment.

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MONEY SAVING TIP: Planning a trip and need a flight?

Purchase your ticket no later than 14 days before departure. More airline tickets are sold Monday through Friday. And, more airline tickets are sold on Tuesdays, Wednesday and Saturdays, so these are the cheapest days to fly.  Also, try flying early morning or late at night that’s better too; you’ll be sure to save some extra money there, as these are the cheapest times to fly.

Take advantage of email alerts that many traveling websites offer.  They will notify you with some great deals.


DID YOU KNOW…the highest-markup items at the grocery story are on the shelves at about chest level? Reach up or kneel down to select the cheaper house or generic brands.




DMCC Supports National Consumer Protection Week

Deerfield Beach, FL – Free Seminars Supporting National Consumer Protection Week (3/6 – 3/12/11)

Debt Management Credit Counseling Corp. (DMCC) is participating in National Consumer Protection Week (a Federal Trade Commission’s campaign) by hosting two days of free financial literacy seminars at our location. The seminars will cover an array of topics including:

Read more