Is Forgiven Debt Taxable?

Debt forgiveness is taxable; the creditor should send a 1099 form for the unpaid amount.

QUESTION: Debbie asks if you accept a settlement offer from a collector, does the creditor send you a 1099 form for the difference between the balance and the settled amount.

ANSWER: Yes. Debt forgiveness is considered income and is taxable, but when you pay taxes on $1,000 of knocked-off debt, it’s still less than the full amount. There is a 1099 involved.