Debt Discharge

DEFINITION of 'Debt Discharge'

The cancellation or forgiveness of a debt. Debt discharge results in taxable income to the debtor unless the forgiveness is a gift or bequest.

BREAKING DOWN 'Debt Discharge'

When a debt is discharged by an institution, the debtor will usually receive a Form 1099-C that shows the amount of debt forgiven. The debtor must then report this as miscellaneous income on the 1040.