Cancellation Of Debt - COD

AAA

DEFINITION of 'Cancellation Of Debt - COD'

When a creditor forgives a debt without requiring consideration in return. The amount of debt that is forgiven by cancellation of debt is considered income to the debtor and must be reported as a result. In most cases, it is taxable as ordinary income and is known as cancellation-of-debt (COD) income.

In some cases, this debt is from one country to another and is partially or fully wiped away to help rebuild the nation.

INVESTOPEDIA EXPLAINS 'Cancellation Of Debt - COD'

If the cancellation of debt is taxable, the debtor will receive a 1099-C at year-end that reports the amount of debt forgiven as taxable income. For example, if a bank lent $10,000 to you and you pay back $6,000, then are unable to pay the remainder, the bank can forgive the $4,000 difference, which will be recorded as income for you.

Cases in which debt forgiveness is not considered income include bankruptcies, insolvencies, certain farm loans and non-recourse loans.

RELATED TERMS
  1. Voluntary Termination

    1. An employee's decision to leave a job of his or her own accord. 2. ...
  2. Debt Discharge

    The cancellation or forgiveness of a debt. Debt discharge results ...
  3. Tax Attribute

    A type of loss or tax credit that must be reduced as a result ...
  4. Bankruptcy

    A legal proceeding involving a person or business that is unable ...
  5. Insolvency

    When an individual or organization can no longer meet its financial ...
  6. Debt Fatigue

    When a debtor stops making payments on his or her debts and starts ...
Related Articles
  1. Taxes

    3 Retirement Plan Moves To Make Before Year-End

    If you don't know what must be done before December 31 you may miss opportunities - or even pay penalties.
  2. Credit & Loans

    A Lifeline For Those Drowning In Debt

    Don't wait to be saved, find out where the lifesaving devices are and hang on tight!
  3. Taxes

    Don't Put Off Your Year-End Tax Plan

    From sales tax deductions to credit reports, check out what items should be on your financial checklist.
  4. Taxes

    No Debt Forgiveness For The Tax Man

    Debt settlement sounds like a free lunch, but it has tax consequences.
  5. Entrepreneurship

    What are the differences between chapter 7 and chapter 11 bankruptcy?

    Chapter 7 bankruptcy is sometimes also called liquidation bankruptcy. Firms experiencing this form of bankruptcy are past the stage of reorganization and must sell off any un-exempt assets to ...
  6. Options & Futures

    Top 7 Most Common Financial Mistakes

    Choose fortune over disaster by avoiding these money traps.
  7. Credit & Loans

    What is the difference between APR and APY?

    Learn about the difference between the calculations for APR and APY. APY takes into account the number of times that the interest rate is applied on an amount.
  8. Credit & Loans

    5 Top Credit Karma Tools To Keep Your Credit High

    As if the free, no-strings credit checkup weren't enough, this site also gives you personalized feedback to make you a better money manager.
  9. Credit & Loans

    What is a bank's legal liability when issuing a letter of credit?

    Learn the responsibility of banks that issue letters of credit Letters of credits ensure payment on transactions between parties that have no relationship.
  10. Credit & Loans

    When are you legally required to get a letter of credit?

    Learn how exporters or importers who deal in international trade use letters of credit to ensure that transactions are safe, risk-free and successful.

You May Also Like

Hot Definitions
  1. Command Economy

    A system where the government, rather than the free market, determines what goods should be produced, how much should be ...
  2. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  3. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  4. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  5. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  6. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
Trading Center