What do I do with that 1099-C form I got?

Did you settle an outstanding debt last year? In other words, did you pay less than what you owed? Then you should have gotten a 1099-C in the mail.

Creditors who forgive debts of $600 or more are required to send a 1099-C, what's called a Cancellation of Debt form to the borrower and to file a copy of that form with the IRS.

If you get one of these forms, don't ignore it.

"You have to address the 1099-C because the IRS will assume that's taxable income, unless you can show them that it's not," explained Gerri Detweiler, director of consumer education at Credit.com.

Detweiler says it's important to check the form and make sure there aren't any mistakes.

"There are problems with some of these forms," she told me. "They're wrong, they're too old, the amount listed is wrong and in that case you may have to dispute it, but there are methods to do that."

By the way, you should also expect to get a 1099-C if you sold your home in a short sale or went through a foreclosure on a home that was worth less than what you owed on it.

More Info: Just Received a 1099-C? Don't Freak Out!