Canceled debt
Debt a lender forgives or settles for less. The IRS generally treats the forgiven amount as taxable income.
If a lender cancels $600 or more, it usually sends you a Form 1099-C. You report the canceled amount as income unless an exclusion applies.
Exclusions include debt canceled in bankruptcy and debt canceled while you were insolvent, meaning your debts were larger than everything you owned. IRS Publication 4681 has a worksheet.