Can My Client Get Out of Paying Taxes on Cancelled Debt After Divorce?


Dear Steve,

I have a client who divorced. He received a letter from the IRS stating he owes taxes on $19000 of canceled debt. He didn’t receive a 1099-C.

In the divorce he was required to pay 75% of debts, she 25%. The full debt was around $25000 for a car, held in both names.

She got the car and subsequently wrecked it, did not pay it off, and the loan was ultimately canceled.

Is there a way he can get out of paying taxes on this? He doesn’t seem like he had any gain, so I was hoping he could qualify for some relief.



Dear David,

Here are a couple of past questions you should look at: here and here.

What you actually have here is a common misperception about divorce and a specialized tax question.

On the divorce front, it doesn’t matter what the agreement was between the couple. They can legally terminate their marriage but that does not terminate the legal contract with the lender. If the car was financed in his name only or jointly, he is still responsible for the entire loan or in this case the canceled part of the debt.

However, when it comes to his full tax liability for the car loan, that gets a bit more complicated as you can see in this previous question.

Your client really needs the advice of a qualified tax professional who can provide expert assistance on how to treat the 1099-C resulting liability.


You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.

Do you have a question you'd like to ask me for free? Go ahead and click here.

Damon Day - Pro Debt Coach

Follow Me
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
Steve Rhode
Follow Me
Latest posts by Steve Rhode (see all)
See also  I Just Got a 1099-C Form for a Debt From 16 Years Ago

2 thoughts on “Can My Client Get Out of Paying Taxes on Cancelled Debt After Divorce?”

Leave a Comment