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DW had a line of credit (which I never knew about) with a bank. Seems she ran it up to about $18,000 -- then got someone at the bank to agree to $9000. Question: So do you think the other $9000 was sold off to a collection agency and that $9000 will still count as more money that is owed -- and still count negatively her her credit score?

If what really happened is what this says, early the next year DW (or you jointly, depending on how the LOC was titled) should receive a 1099-C from the bank showing $9000 of income in the form of forgiven debt. This is typically reported on Line 21 of Form 1040* and you pay income tax on it.

I'll let others address what this does to the credit report.

If there was no 1099-C, there's a good chance that what you wrote isn't what really happened. In that case, there is the question of fact as to what really happened before you get to the question of how it affects the credit report and potentially affects the tax return.

Patzer

*As with much of the tax code, there is a chance for further complexity in the tax return. In this case, if DW or you, jointly were insolvent or went through bankruptcy tax rules that I don't understand come into play and you want to consult a tax professional.
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