What does solvency mean?
When you are solvent, it means you have more assets than you have liabilities you are in the black by at least one dollar. When you are insolvent that means you owe more then you are worth. How do you tell if you are solvent or insolvent? You simply add up everything you owe (your liabilities) and add up everything you own based on Fair Market Value (your assets) – If you are negative you are insolvent. Creditors are required by law to send out a 1099 for Debt Forgiveness that is over $600. But it is possible that a creditor may not. If you do received a 1099 for a settlement that has taken place, you may still be required to report the debt forgiveness. There is an IRS Debt Forgiveness Form 982 that you will have to fill out. If you were insolvent, (negative net worth) then the income may be excluded. If you were solvent, then you may owe income tax to the extent of your solvency. Homeowners with equity in their home have a greater tendency to be solvent due to the large number equity
