Debt settlement is a form of partial debt forgiveness. When you settle a debt, your creditor is technically agreeing to FORGIVE a portion of your debt in exchange for you paying a certain amount within a certain time frame. For example, let’s say you owe $5,000 to your creditor and they agree to settle the debt for $2,000 in a single payment due by the 30th day of the current month. As long as you pay them $2,000 by that date, your creditor will forgive the remaining $3,000 of your debt. You will eventually receive a 1099-C “Cancellation of Debt” tax form from your creditor documenting this debt forgiveness, which you will need to file with your tax return.