Debt Reduction Consequences

As money gets tighter and tighter you may find yourself in the situation of not being able to pay all or part of a debt. You may negotiate with your creditor to have part or all of your debt forgiven.

When a debt is forgiven or reduced the creditor will issue a Form 1099-C Cancellation of Debt for the amount forgiven or discharged. This needs to be reported as income on your tax return.