What does it mean when I receive Form 1099c from a creditor?

A: When a creditor sends you a copy of the IRS Form 1099, it means the creditor cancelled this debt and reports this to the IRS. Cancelled debt can be treated by the IRS as income that you would have to pay income tax on. However, there are several circumstances in which someone does not have to pay income tax on cancelled debt. One of these circumstances is when the debtor filed for bankruptcy. You still would have to inform the IRS that the debt was included in your bankruptcy filing. You or better your tax consultant would do this by filing Form 982 with the IRS. We see it every so often that receiving the 1099 notice causes confusion for our clients but also caused by their tax consultants who sometimes don’t know how to handle the situation. Bankruptcy attorneys don’t want to give tax advice and will leave it up to your tax consultant to give proper advice. But the bottom line is, you don’t have to pay income tax on debt that is discharged through bankruptcy and you need to let the IRS know about it through filing form 982 with your income tax return.