Yes. Canceled debt, often accomplished with the help of credit counselors and debt settlement agencies, needs to be reported.
Your lender will send you a 1099-C form, which includes the amount of canceled debt. Simply enter your 1099-C to report it on your return.
Although canceled debt often counts as taxable income, that's not always the case. Exceptions include bankruptcy and canceled mortgage debt. When you enter your 1099-C, we'll ask followup questions to determine if it's taxable or not.