Generally, when a debt is cancelled by a creditor, the amount cancelled is “income” for tax purposes.  Creditors must issue Form 1099c’s to any person whose debt was cancelled.  However, debt discharged in bankruptcy is NOT “cancelled” debt.  And according to IRS regulations, creditors do not have to send 1099c’s to people who filed for bankruptcy.  Nonetheless, creditors sometimes do anyhow.  In order to make sure that the IRS does not include the discharged debt as income, the debtor must file an IRS Form 982.  This is a very simple and easy form to fill out, and the instructions for filling out the form are included on pages 2-3 of the form.

Tax time is coming up! I’ll start off by saying that most people who come to me with heavy tax debts cannot wipe out those debts. That’s because those debts do not fall within the category of dischargeable tax debts. In order to be able to wipe out tax debts in bankruptcy, all 3 of these rules must apply to the tax debt:

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