Consumer Protection Law
Consumer Protection Law Questions? Ask a Lawyer Now.
Hi! LegalGems here. My goal: To Do My Best To Assist You. Please remember, I can only provide general information,as this is a public forum.
Congratulations for successfully paying off this debt - I know credit card debt can get out of hand.
When a creditor waives a debt, they claim it on their taxes as a loss. In turn, the debt then becomes taxable to you. The bank will send you a 1099 C http://www.irs.gov/uac/Form-1099-C,-Cancellation-of-Debt
They only send this if the debt waived was greater than $600.
This alerts the IRS to the waiver of the debt, and the amount waived is treated as income to the debtor.
Unfortunately, there is no way to avoid this.
You will be taxed on the amount according to your relevant tax bracket.
Thanks very much for your answer. I appreciate your help!