Filter Results CategoriesCart
Highlight Updates

1.4.3 Cancellation of Debt and Taxes

In some cases, consumers may be able to negotiate to reduce or eliminate an outstanding debt. Creditors and debt buyers that cancel or forgive a debt (or portion of a debt) worth at least $600 must file an information Form 1099-C with the Internal Revenue Service by March 31 of the following year, and must also send a copy to the consumer.244 The principal of a cancelled or forgiven debt may be considered taxable income to the consumer by the IRS, with a number of important exceptions, including the dispute of the debt, the debtor’s insolvency, or discharge in bankruptcy.245 This tax liability has become a big issue for homeowners who are under water and is discussed in detail in National Consumer Law Center, Foreclosures and Mortgage Servicing § 12.6 (5th ed. 2014), updated at


  • 244 26 C.F.R. § 1.6050P-1(a).

  • 245 Internal Revenue Code, 26 U.S.C. §§ 61(a)(12), 108. See National Consumer Law Center, Consumer Bankruptcy Law and Practice § (11th ed. 2016), updated at (litigation tax consequences for prevailing clients).