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Looking to Settle with Your Creditors at a Discount? Beware the IRS Tax Trap! Don't Do It Until You've Listened to This Episode of the Podcast!

One option people have for dealing with their debt is to negotiate a compromise figure, so as to get a balance that they can afford to pay, either in a lump sum or in payments over time. They may not be able to afford $7,500, but they can afford $5,000. In this way they can avoid bankruptcy and still pay their creditors.

A complication comes in, however, in that the $2,500 you saved on the deal is considered taxable income by the IRS! This can come as a nasty surprise when it comes time to prepare your return. But there may be a way to avoid those taxes if you know what to do. That is why I invited local accountant Jerry Glauser onto the show to talk to me about the solution to this problem.