What is Forgiven Debt

Forgiven Debt, or debt forgiveness, is when your creditor gives up.  They charge off the debt and take the loss.  They report the loss on their tax returns.  Their loss becomes income to you.  The IRS will tax you on forgiven debt.

When you settle a debt for less than you owe debt is forgiven.  You will owe taxes on the amount of forgiven debt.