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. Bankruptcy

    A legal proceeding involving a person or business that is unable ...
  4. Discharge In Bankruptcy

    A permanent order that releases the debtor from personal liability ...
  5. Ordinary Income

    Income received that is taxed at the highest rates, or ordinary ...
  6. Insolvency

    When an individual or organization can no longer meet its financial ...
RELATED FAQS
  1. 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 ... Read Full Answer >>
  2. When capitalizing interest, will interest accrue while you are in a deferment?

    When capitalizing interest, interest accrues while a person is in a deferment of his loan. In the event of a deferment, the ... Read Full Answer >>
  3. Why is more interest paid over the life of a loan when it is capitalized?

    More interest is paid over the life of a loan when that interest is capitalized because the capitalized interest is added ... Read Full Answer >>
  4. How can I tell if a security is considered investment grade?

    It is possible to tell if a security is considered to be investment grade by looking at that security's ratings with either ... Read Full Answer >>
  5. How do I transfer my credit card history from one country to another?

    It is currently not possible to transfer your credit history to another country if you relocate. The credit metrics used ... Read Full Answer >>
  6. What are some examples of simple interest loans?

    Two good examples of simple interest loans are simple interest car loans and the interest owed on lines of credit such as ... Read Full Answer >>
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. Options & Futures

    Top 7 Most Common Financial Mistakes

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

    Calculating Interest Expense

    Interest expense is the cost of borrowing money.
  7. Credit & Loans

    Explaining Credit Ratings

    A credit rating is a third-party assessment about the creditworthiness of an individual or entity.
  8. Economics

    Explaining Tenor

    Tenor is the length of time to maturity of a debt, contract or loan.
  9. Economics

    How Does a Lien Work?

    A lien gives a creditor the legal right to seize and sell property, then use the proceeds to pay off a borrower’s debt.
  10. Credit & Loans

    What's a Hire Purchase?

    Hire purchase is a term used in Great Britain to describe an installment plan payment arrangement.

You May Also Like

Hot Definitions
  1. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  2. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  3. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  4. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  5. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  6. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!