Are you insolvent? Meaning is your liabilities more than your assets? Did you receive Form 1099C from the credit card companies?
Yes, I would say so. I own real estate which is upside down, no other assets. Yes, 1099 from credit card and collection agency.
To determine insolvency you need to prepare a personal financial statement as of the day before the debt was discharged. A personal financial statement would show all assets at their then fair market value and all outstanding liabilities. If the liabilities exceed the value of the assets, then you may defer recognition to the extent of the excess of the liabilities over the assets.
Section 108(a)(1)(B) provides that, "Gross income does not include any amount which (but for this subsection) would be includible in gross income by reason of the discharge (in whole or in part) of indebtedness of the taxpayer if ... the discharge occurs when the taxpayer is insolvent." Section 108(d)(3) further provides that, "The term ‘insolvent' means the excess of liabilities over the fair market value of assets. With respect to any discharge, whether or not the taxpayer is insolvent, and the amount by which the taxpayer is insolvent, shall be determined on the basis of the taxpayer's assets and liabilities immediately before the discharge."
You will have to file Form 982 and exclude the debt discharged as income to the extent of insolvency.
(1) Check the appropriate box under line 1 on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) to indicate the type of discharge of indebtedness and enter the amount of the discharged debt excluded from gross income on line 2. Any remaining canceled debt must be included as income on your tax return.(2) File Form 982 with your tax return.