Recently a few of my bankruptcy clients received their 1099-C forms from creditors whose debt was discharged in bankruptcy. While outside of bankruptcy cancellation of debt could lead to tax implications, debts discharged in bankruptcy should not. However, the fastest way to deal with the problem is to file Form 982 along with your tax return and mark box 1a. http://www.irs.gov/pub/irs-pdf/f982.pdf

This same form can help people who are facing cancellation of debt “income” if they can show that they were insolvent at the time this income was incurred.

Note, I am not a tax professional and  this is not meant to substitute for competent advice by a tax professional. Further, this does not create an attorney-client relationship between the author and reader.