Most people struggle at one time or another to their pay bills. Often, the payments fall further and further behind, and climbing out from the debt cycle feels hopeless.
If you’re in this situation, you may have asked the bank, credit card company, or another creditor to write off or forgive your debt — usually for much less than is due on your account. In some cases, the lender will agree and stop trying to collect due to time, circumstances, or other contributing factors.
What you may not know is that when the lender writes off your debt, they may assign you a form 1099-C (cancellation of debt). This 1099 gets sent to the appropriate taxing agencies, and it will appear in your IRS file for the year the debt was charged off or forgiven. But what does a 1099-C really mean? Do you have to do anything after a creditor writes off your debt? What is your responsibility? In this article, we’ll answer those questions and explain the basics of how debt forgiveness affects taxes.
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