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I was told by my Bankruptcy attorney that debt discharged is not income due to my being insolvent.

Therefore, did Discover card err in sending a 1099-C Cancellation of Debt form to me that says "debt discharged in bankruptcy" on line 6.

Do I need to get them to send a corrected form 1099-C?

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2 Answers

No, it's not income. But the 1099-C is sent when the creditor charges off the debt.

When you file your taxes, you need to tell the IRS that the charge-off is not taxable. The most common exceptions are:

  • The debt was discharged in bankruptcy BEFORE the cancellation.
  • You were insolvent when the debt was cancelled. Insolvent has a specific meaning to the government.

If your state has income tax, check on how they handle this scenario.

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See my answer on the need to file form 982 in order to tell the IRS that it is not taxable. –  WilliamKF Oct 17 '11 at 14:43
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