If you received a 1099-C in the mail from a creditor, you may be wondering what it is.
Often, creditors will report the amount of a debt forgiven to the IRS. The IRS considers forgiven or canceled debt as income. This may happen to you after resolving a credit card debt, and if so you may receive a 1099-C “cancellation of debt” notice. This most usually happens when your creditor and you make a settlement for at least $600 less than the original balance. In this scenario, the creditor is required by law to file the cancellation of debt notice with the IRS.
What to do if you get a 1099-C
If you receive this form, don’t panic! It may not affect you or your tax return. It is hard to determine whether you will be affected by this or not without discussing it with a certified tax professional. For example, you may be insolvent. This simply means that the amount of debt owed is more than the total of your income and wealth. Consult a tax professional to find out how settling debts may affect you.