The first thing you can do is look in box 5 on your Form 1099-C. If that box is not checked, it may mean the debt in non-recourse and if so the debt cancellation is not taxable. Non-recourse means the creditor can't come after you personally for payment of the debt after the collateralized property is returned to them.
Otherwise, the IRS will consider the debt cancellation as taxable based on the reporting on Form 1099-C. In that case, you may be able to avoid paying tax on it if you were insolvent at the time the debt was cancelled. That would mean you had more debt than the value of your assets. If so, you can prepare Form 982 in the desktop version of TurboTax to exclude taxation of the debt cancelled to the extent you were insolvent.
Your other option would be to not report the income or report it and then enter a negative entry to income to cancel it out. If you choose those options you need to be prepared to explain to the IRS whey you feel the debt cancelled is not taxable.
You can make that adjusting entry in TurboTax as follows:
1. From the Federal menu in TurboTax find Wages and Income
2. Find Less Common Income
3. Choose Miscellaneous Income, 1099-A, 1099-C
4. Choose Other Reportable Income
5. Enter a description of the adjustment and the adjustment as a negative number
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