According to the IRS, a forgiven debt is a taxable income. This means that at the end of the year, you will be expected to pay taxes on the settlement. However, IRS Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, may exempt you from this tax. Please contact a tax advisor to discuss this issue further.
At Rebound From Debt, we also have an optional tax preparation program for our clients. So, do not worry, we have your back. Just send us the paperwork and we will handle the rest.