If a creditor forgives more than $600 on one of your accounts, they must report that forgiveness to the Internal Revenue Service (IRS). You will then receive a 1099-C tax form the following January. This does not mean you will be required to pay tax on that amount, however.
If you can show that you were insolvent, or had more debts than assets, at the time your debt was forgiven, you will NOT have to pay tax on that forgiven debt. This is generally the case with most people with large debt amounts. So unless you have a lot of equity in your home, you will probably not be required to pay tax on the forgiven debt.
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