However, you might not have to pay if you were insolvent.

Say I owe $2000 and settle the amount with them for $1000. So would this reduction of $1000 be treated as taxable? What paperwork does the tax preparer need if this happen? Who is responsible for sending the form 1099c for this?

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It’s unfortunate but yes, you have to pay taxes on the forgiven amount. However, you might not have to pay if you were insolvent. The creditor who is forgiving the debt should send you with a form 1099C.


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