The recession has seen millions of Americans struggling with high credit card debt, and in some cases, they have been able to reach settlements with their lenders to help them avoid further financial peril.

With that in mind, a report by notes that people who do reach debt settlements will often receive a 1099-C form because forgiven and cancelled credit debt is seen as taxable income by the IRS.

The Web site notes that people who save at least $600 through a debt settlement will have their creditors file a 1099-C form for cancellation of debts with the IRS, as required by federal law. For those who have their debts reduced by a substantial amount, the tax obligation could turn out to be large at filing time.

Many Americans have sought out debt relief services in recent months, in light of an unemployment rate that remains at 10 percent. Recent changes to federal law now protect people from abrupt increases to their interest rate, as well as the penalty fees that can come with late payments. However, such provisions come too late for a number of people who have struggled with debt throughout the recession.

Regardless of whether a person has had credit debts forgiven or cancelled in the past year, or whether they have collected unemployment benefits, it's wise to consult with a tax preparer to understand any tax obligations that may present themselves at filing time.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.