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Does credit card settlement the forgiven amount on 1099-C be discharge in chapter 7.

San Juan Capistrano, CA |

I have been agree settlement with the credit card company in the amount 25% what I was owned and I has paid the settlement amount. Credit card company will send me form 1099-C in the amount $7500 forgiven. I am planing to file ch7 does the $7500 will be discharge in bankruptcy? The settlement was before the chapter 7.

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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.

This answer in no way creates an attorney-client relationship. The answer is not a complete answer and requires additional facts in order to provide the best options. The submitter accepts the risk of relying on such an incomplete answer and waives any claims of damages for doing so. As stated in the answer the submitter should contact a qualified bankruptcy attorney is discuss these issues further before any action is taken. Any action taken without advise and counsel of a qualified attorney is inadvisable.


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.


Ahh! The old "phantom income" issue of forgiven debt on 1099-C.

Review the information on the web link, below.


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.

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