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Is it legal for a creditor to send a 1099-C for a discharged credit card debt? and is the amount taxable income?

Canton, MI |

Since only one creditor sent a 1099-C , tells me it's not the norm, so why send it then?

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Attorney answers 7

Best Answer

1. Is it legal, yes.
2. Is it an error, no.
3. is it required, no.

If anyone actually reads the instructions and IRS regulations regarding 1099-C's, you will learn that a lender is not "required" to issue a 1099-C on ddebt discharged in bankruptcy, but it is not forbidden from doing so. As such, it is NOT an error.

A 1099-C is merely a reporting document. All it does is tell the IRS that a potentially taxable event occured. If you recieve a 1099-C, and assuming the debt was discharged in bankruptcy, the debter need only file IRS Form 982, check box 1(a), write the amount in box 2, and bam, no tax liability on discharged debt.


Your CPA or Tax Account will know how to handle this. Don't ignore it - that'll only get you a bill from the IRS.


I have been handling bankruptcies, both Chapter 7 & Chapter 13, for 26 years, and I have never known any of my bankruptcy clients to receive a 1099C on a discharged debt. See your tax preparer ASAP, and take your bankruptcy petition with you along with the discharge notice. Good luck.

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Diane L Gruber

Diane L Gruber


Check out the answers on this very question asked by another debtor.


It is not illegal, but it is an error. The IRS requires you to complete an additional form to straighten this out.


This was debt discharged in a bankruptcy? If so, it sounds like an error and you should call them to have it fixed asap.

If this is for non-bankruptcy debt, then there is no problem and you may or may not owe taxes depending on a lot of things.

The above is general legal and business analysis. It is not "legal advise" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also terms and conditions item 9, incorporated as if it was reprinted here. Please visit my web site: for more information about my services.


Generally, cancellation of debt (COD) income is included in a taxpayers income unless it fits within one of the recognized exceptions spelled out in the Internal Revenue Code (IRC).

One of the explicit exceptions to cancellation of debt income (COD) in the IRC is debt discharged in bankruptcy. That is of course provided that the discharge and 1099 were issued in/for the same tax year.

If the 1099 was issued for a different year by mistake you must immediately contact the creditor and have them correct their mistake.

Creditors are typically obligated under the law to issue 1099's for COD income.

Therefore, discharged COD income is generally not taxable and will not increase your tax burden.

Simply inform your CPA that you filed bankruptcy in the same year to which the 1099 pertains and he or she will make sure to check the right box on your return and you will not have to pay more taxes.

Joseph Y. Balisok, Esq.
1650 Eastern Parkway, Suite 303
Brooklyn, NY 11233
Office (718) 928-9607

All information contained herein is not intended to create an attorney client relationship. =============================================================== CIRCULAR 230 DISCLOSURE: Per regulations governing practice before the Internal Revenue Service, any tax advice contained herein is not intended or written for use, and cannot be used, to avoid tax penalties that may be imposed on the taxpayer. ===============================================================

Gary D. Bollinger

Gary D. Bollinger


I think the right box to check will be found in IRS Form 982.


See IRS form 982. You may find this helpful in this situation.