Generally, you will get one but the debt may not always be taxable to you. Under the following circumstances, the debt would not be considered income:
- Debt canceled in a Title 11 bankruptcy case
- Debt canceled to the extent insolvent (you must file additional paperwork with your tax return to demonstrate this) Insolvent means you have more debt than you have assets at the time the debt is canceled.
- Cancellation of qualified farm indebtedness
- Cancellation of qualified real property business indebtedness
- Cancellation of qualified principal residence indebtedness that is discharged subject to an arrangement that is entered into and evidenced in writing before January 1, 2021
In some cases, it may be worth paying the tax but that is a decision that only you can make.
Canceled debt and debt settled for less than what you owe is also listed as a negative entry on your credit report, which is another consideration. You can learn a bit more about that here: Why did I receive a 1099-C?
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