My colleagues are correct in that the settlement created a taxable event prior to the Chapter 7. However, if you list the credit card company and the IRS in your bankruptcy and the petition is filed in the same year you have two ways out of the tax liability. The IRS receives 1099s on an enormous amount of debt whether settled or just unpaid each year. By filing in the same tax year and listing both the IRS and the creditor I have found the IRS does not calculate the 1099 as income. If this should not occur there is also relief under the tax code if you were insolvent, which a bankruptcy raises the presumption of. So next year when you file your tax return just mention it to your accountant and they will file the proper forms.
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The settlement created a taxable event existing before the bankruptcy and as such, the tax due itself would not be discharged by the bankruptcy at this point in time with priority status.
Advice on this forum is for informational purposes only and should never be mistaken as a substitute for legal advice. If you are in need of legal advice, you should consult local legal counsel.
If you are still planning a bankruptcy filing, you are likely insolvent. Insolvent in this case means that you have more debts than assets. If this is the case, 1099-C forgiveness of debt is not taxable. Simply complete a IRS Form 982 by checking box 1(b) and file it with your income tax return.