Ypsilanti, MI asked in Collections, Landlord - Tenant and Tax Law for Michigan

Q: 2 roommates and I fell behind on our rent payments. The full amount owed shows on my credit report as Individual Account

What does this mean if I try to settle? Also, how does paying taxes on forgiven debt work when a debt is shared?

1 Lawyer Answer
Adam Alexander
Adam Alexander
Answered
  • Consumer Law Lawyer
  • Southfield, MI
  • Licensed in Michigan

A: If you co-signed the creditor/debt collector can collect from either of you or all of you. You all owe the entire debt - although if one pays it off entirely, the others no longer owe the debt.

If you try to settle the debt for less than the full balance, be sure to get it in writing that the payment is a full satisfaction of the entire balance. The amount on the "forgiven" debt may be taxed, but I would wait for a 1099-C form or other tax document. If you don't receive a tax form, you should discuss the tax ramifications with your tax professional regarding how to report this.

Notably, you should also follow up after your settlement and pull your credit report to see if it is reporting correctly. I would wait 60 days after the settlement to pull your report. If it is not reporting correctly, (still has the full balance, wrong balance, or anyting else not accurate), I would urge you to contact a FCRA lawyer in Michigan.

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