Hi and welcome to Just Answer!
All income the decedent would have received had death not occurred that was not properly includible on the final return, discussed earlier, is income in respect of a decedent.
That is true for all income types including forgiven debt. Generally - that amount should be reported on the estate tax return form 1041 and because the estate is insolvent - the form 982 should be used to exclude that amount from taxable income.
In your specific situation - to avoid additional expenses for filing the estate tax return - I suggest to write a letter to the IRS with explanation - attach a copy of the death certificate and a copy of the form 1099-C asking to close the decedent's account. You may just walk into your local IRS office - see locations here - http://www.irs.gov/localcontacts/article/0,,id=98330,00.html - no appointment is necessary. You will discuss your issues with an IRS representative across the counter and handle the letter.