Billions of dollars in credit card debt that was charged off during the “Great Recession” some of it decades old — is coming back to haunt borrowers in the form of unexpected tax bills.
Debt that is canceled or forgiven is considered taxable income, something many borrowers don’t realize until they receive a 1099-C tax form from their lender. The IRS projects that creditors will send taxpayers 6.4 million 1099-Cs in 2012, up from 3.9 million in 2010.
The increase likely reflects the rise in credit card defaults during the economic downturn, says Gerri Detweiler, personal finance expert for Credit.com. Moody’s Investor Service estimates that the nation’s six largest credit card companies wrote off more than $75 billion in uncollectible balances in 2009 and 2010.