Answer:
It is common practice for credit card companies to renegotiate the balance with you. It isn’t common practice for them to tell you that the amount you are not able to pay is considered income and is taxable. It is referred to as “forgiven debt”, is turned over to the IRS by the credit card company and they, in turn consider it income. Renegotiated mortgages, car loans and credit card debt are all subject to this.
It can take 2-3 years for the credit card companies to report this “forgiven debt” to the IRS. Out of the blue you are smacked with a tax bill which adds insult to injury in my opinion. Another added negative is that by the time you find out the IRS has probably added penalties and interest to what you owe.
I’m afraid there isn’t anything you can do about it. If your divorce decree is worded in a way that makes your spouse an equal partner in repaying the debt then he/she could be responsible for paying half of what you owe the IRS. That is something to check into.
