It seems every February, I get two or three calls from former clients, whose houses have gone into foreclosure, and they received a 1099-C from their mortgage company. The IRS does consider canceled or forgiven debt to be a form of income. However, if you have filed bankruptcy on this debt, you simply fill out IRS Form 982, and check box 1(a) (title 11 means bankruptcy). Even if you have not filed bankruptcy, if this was for a mortgage on your principal residence, you should be able to exclude the debt from being taxable by checking box 1(e). If it was not for your principal residence, and you have not filed bankruptcy, you still may be eligible to exclude this debt from being taxable if you are considered insolvent. While this is a relatively simple fix, it is still important that you include form 982 with your return. For more advice to this regard, you would be best referred to an accountant.