How are discharged debts treated for tax purposes?
Debts that you discharge through bankruptcy have no tax consequences. Specifically under current law, the amount discharged is not to be treated as income. See 26 U.S.C. § 108(a)(1)(A)
Compare this to a situation where you negotiate with a creditor and they reduce your debt, but turnaround and issue you a Form 1099-C. The amount forgiven by the creditor would be counted as income for tax purposes. If a creditor issues you a form 1099-C for discharged debt, that amount will be placed in Section 2 as indicated below.
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