I was under the impression that it wasn’t at the discretion of the bank. I understood it’s IRS regs. Also, if one has a credit card balance forgiven, they likewise have to pay income tax on the forgiven amount.
“The Mortgage Forgiveness Debt Relief Act was introduced in Congress on September 25, 2007, and became law on December 20, 2007. This act offered relief to homeowners who would formerly owe taxes on forgiven mortgage debt after facing foreclosure. The act extends such relief for three years, applying to debts discharged in calendar year 2007 through 2009. (With the Emergency Economic Stabilization Act of 2008, this tax relief was extended another three years, covering debts discharged through calendar year 2012.)”
If a person had an approved short sale, the mortgage lender cannot issue a 1099 for debt forgiveness and there is no tax liability. That was the case with my short sale.
I don’t know about credit card balances. I did have to declare bankruptcy, not because I didn’t want to pay off my debts but because I had no other option or means at the time to do so. Under bankruptcy law, there is no tax liability for the debt forgiveness. Without bankruptcy, I don’t think many credit card companies ever forgive the debt, although they often sell the debt to third party debt collectors who are often ruthless in trying to collect the debt.
Some of them are rather unscrupulous in trying to collect; harassing phone calls, making threats, etc. It was because of my rather small cc debt being sold to third party collectors, some in foreign countries, that I was forced to declare bankruptcy. I was willing to work on a reasonable repayment plan with the companies I owed the debts to once I got back to work, but when I started getting nasty and harassing phone calls from these third party debt collectors; several times a day in some cases and being told that I “needed to borrow the money from family and friends” and found out that my family and friends were also getting harassing phone calls from unscrupulous collectors, sometimes late at night, that I said enough is enough.
One collector told me that since I “obviously had a cell phone” that I must be paying that bill so therefore I should be able to pay theirs as well as I obviously must have $$. But the truth was that the cell phone I had at the time was an extra one that belonged to a relative and was being billed and paid for by her. When I tried to explain that and explain that having access to a phone was necessary in looking for work that would enable me to pay off the debt, the collector started screaming and cursing at me and called me “a liar and a dead beat”. I promptly hung up on him and called a lawyer the very next day to start the bankruptcy. If the CC company had been willing to work with me and not sold my debt to a third party, I’d have probably paid off the debt by now or been well on my way to doing so.