A creditor may send you a 1099-C for the amount of debt forgiven. The IRS could consider forgiven debt as taxable income. IRS Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, may exempt you from owing any taxes on debt that has been forgiven. According to IRS.gov “A taxpayer is insolvent when his or her total liabilities exceed his or her total assets. The forgiven debt may be excluded as income under the ‘insolvency’ exclusion. Normally, a taxpayer is not required to include forgiven debts in their income reporting to the extent that the taxpayer is insolvent.” You may want to speak with your tax advisor if you receive a 1099-C. In the very worst-case scenario, paying some income tax on a debt balance forgiven is trivial compared to paying high-interest rates month after month and year after year for potentially decades.