Charge off and 1099 Plus Suit?

[mfez]

I have a first mortgage on my house and a HELOC with another bank. Due to a nasty divorce situation, neither loan has been paid for six months. I'm trying to sell the house; at best I may satisfy the first loan.

The HELOC owner has informed me they are going to charge off the loan and issue me a 1099. They have also said they will try to get a judgment against me for the amount owed. Question: If I am issued a 1099, can they still sue me on the loan? It doesn't seem right to me that the loan would be income to me AND the bank could sue me for the same amount. Also, the state I am in (PA) has tough deficiency laws. It seems odd that the lender could avoid those laws simply by charging off the loan.

Thanks!

[catleg]

I'm sure somebody else knows better, but I agree with you. Usually a settlement triggers a 1099, it fixes their loss and your gain. If you're insolvent the gain is not taxable, but if they sue you the 1099 might be proof that they have forgiven the debt to you.