What is a 1099-C?

As tax time rolls around, clients begin to call asking about receiving a 1099-C for debts settled in the Previous Tax year. The 1099-C is for Cancellation of Debt Income for the previous tax year. This can be issued for several reasons. What usually happens for my clients is we have negotiated a settlement for less than what was owed on a debt for the previous tax year. The 1099-C is generated by the creditor indicating the difference between the debt owed and the settlement amount.

A quick example would be as follows: Client has a credit card debt of $10,000.00. We negotiate a settlement in the amount of $3,000.00. Client receives a 1099-C from the creditor in the amount of $7,000.00. Whether or not this is subject to taxation is an issue you should discuss with your accountant.

It is important to understand as the debtor that debts settle for over $600.00 or more may generate 1099-C, which could increase your tax liability. The liability will be less than the original debt owed. However, often, it is forgotten until the 1099-C is received the following January.

If you have any questions regarding Bankruptcy, Debt Settlement, or need a Lawyer for a civil litigation matter and live in Stuart, Port St. Lucie or Jupiter, please give me a call. Thank you so much for visiting my website. The video below briefly discusses what a 1099-C is and how to address it. If you feel you have received a 1099-C improperly, do not ignore it, contact your accountant.