"We will no longer attempt to collect the unpaid debt on your account", - 1099-C

[slvnomore]

"We will no longer attempt to collect the unpaid debt on your account", - You will get 1099-c from us in the near future.


Got 3 letters from CC company about 3 accounts with them I stopped paying 2 years ago.

1) What does it mean in real life?

2) Can they still sell the debt, sue me or go after me in any way?

3) What can I do as the next right steps?

thank you!

[justbroke]

A 1099-C is issued when a bank has canceled and forgiven all or a portion of a debt. The issuing bank must also file the 1099-C with the IRS, and the amount that was canceled may be considered income. (If you filed bankruptcy, then you may be able to file form 982 and claim that the debt was also discharged in bankruptcy and not subject to taxation.)

Now, what they should do and what they can do are two different things. They should never attempt to collect the debt again. This may not stop a bank/lender from then selling the debt anyhow. If this happens, you just show a copy of the 1099-C to the new creditor and let them know that you will exercise your rights and recover any attorney fees if they pursue collection of a forgiven debt. In most cases, you will never hear about this debt again.

As for the 1099-C itself, you must deal with it in tax year in which you received the 1099-C. That means following the instructions for a 1099-C and also filing Form 982 if the corresponding debt was discharged in a bankruptcy (or you have other reasons, such as insolvency, which may also make it non-taxable).

[slvnomore]

Thank you so much for such an informative reply. I very much appreciate your valuable time.

I am so afraid to hope that this is so.
so forgive my repetition. if i heard you correctly:

1) Even though it has only been 2 years. and the SOL is longer.
The debt will no longer be collected on by the OC. ( I am in IL)

2) if the do sell it, I just dispute it and show them the 1099 C

3) This means that for all practical purposes these 3 debts are out of my life, as far as collections or being sued?

This has been such a nightmare, I am afraid to get it wrong or to hope…

Thx!

[justbroke]

Yes, this means that it is over, the debts cannot be collected, and that any attempts to collect this debt should be met with providing a copy of the 1099-C and referring the collector to the IRS if they have "questions" about what it means.

From what I personally know and from some of the things that I have read, there would normally not be any further attempts to collect the debt. I have not had this issue and I have received a 1099-C. However, there have been cases where post-1099C collections or a sale of the "debt" has happened. If that happens I would still send a copy of the 1099-C and ask the new collector how it can be both "canceled" and "due". It can only be one or the other.

[slvnomore]

That just sounds like a miracle if true.

can you point me to some links or articles that can tell me more about how you reached this conclusion.

Also is it a charge off? a write off? does it matter for collection purposes? BIG THANX!

[justbroke]

Well, first, it is from firsthand experience. I had a 1099-C issued in 2010 and I have never heard a peep, never had a letter, never a phone call, and no credit report activities.

Having wrote that, Forbes had an article here which reviews this back in 2013. Now, there has been a lot of misunderstanding in just what a 1099-C does to a debt with regards to collect-ability. The IRS instructions for a 1099-C indicate that the 1099-C was issued either because the debt was canceled (forgiven or discharged) or some other event triggered the 1099-C. The latter is what some creditors rely on when re-selling or continuing to pursue the debt. There are several bankruptcy courts that have not agreed with this line of reasoning (when it came to claims in a Chapter 13 or an asset Chapter 7). One such bankruptcy case was In Re Reed, 492 B.R. 261 (Bankr. E.D. Tenn. 2013).

So, in many cases it won't be an issue, but there are still debt collectors that would buy such debt and attempt to collect. The real story is whether the debt was actually forgiven (canceled/discharged by the creditor), or was the 1099-C just for an IRS reporting event. Hard to tell!

In your particular case, you should keep a copy of the letter which reads that they will no longer attempt to collect the debt from you, and a copy of each of the 1099-Cs. They may come in handy should the debt be sold to a junk debt buyer (JDB).

At least, that's all I know about this and my personal experience.

References:

http://www.forbes.com/sites/peterjreilly/2013/05/20/bank-cannot-issue-1099-c-and-subsequently-try-to-collect/

http://www.irs.gov/pub/irs-pdf/f1099c.pdf

http://business-finance-restructuring.weil.com/wp-content/uploads/2013/09/Reed-492-BR-261-Bankr-ED-Tenn-2013.pdf

[slvnomore]

The real story is whether the debt was actually forgiven (canceled/discharged by the creditor), or was the 1099-C just for an IRS reporting event. Hard to tell!

THAT is the crux of the matter. How do we verify, clarify and triple check the rock solid legal truth on this?

BTW have you heard other people that have gotten this letter recently? I heard a major bank may be sending them out as they are
in several huge lawsuits ? THX!

[slvnomore]

this is also interesting.

Perhaps a better question to ask is whether the newly redesigned 1099-C, which requires the reporter to include a code for the event, will improve things. If the 1099-C explicitly says code G (policy decision), then the debtor may well have a case that the debt has not been truly canceled. I don’t know whether there have been any rulings on this situation in the past.

[justbroke]

We will just need to see what happens. I would say that the "event code" would probably tell you whether it was "discharged/canceled" or just because of a reporting issue (code "I").

The instructions for the 2013 and 2014 IRS Form 1099-C read that the event code should be treated as follows;

Codes A through G and I identify specific occurrences resulting from an actual discharge of indebtedness. However, Code H, Expiration of nonpayment testing period, does not necessarily identify an actual discharge of indebtedness.

My "plain" reading of the event codes documented in the 2014 IRS 1099-C instructions, would leave me to believe that only code "H" would indicate that the debt may not have been discharged. Any other code is a discharge (cancellation/forgiveness) of the debt, according to those instructions.

As a disclaimer, you should always consult a tax accountant and/or attorney with how to deal with any issues with reporting. I am neither a tax specialist nor tax attorney. Consider my ramblings just that... my personal thoughts on the topic.

[slvnomore]

interesting… here is some more info I found on this.

What can LEGALLY be reported probably depends on the CODE for field Box 6 on the 1099, the “Identifiable Event Code:”

A Bankruptcy
B Other judicial debt relief
C Statute of limitations or expiration of deficiency period
D Foreclosure election
E Debt relief from probate or similar proceeding
F By agreement
G Decision or policy to discontinue collection
H Expiration of nonpayment testing period
I Other actual discharge before identifiable event

A client just received a 1099 from Chase with code G:

“G Decision or policy to discontinue collection”

However, Chase still reports the full amount on the credit reports (along with totally bogus RECENT 120+ late payments) and we disputed. I argue that credit reporting IS an attempt to collect as the past due balance lowers your credit rating and it likely has to be PAID to get a mortgage.

However, Code H clearly means that they can continue to collect.

“H Expiration of nonpayment testing period”

The creditor merely complied with the IRS rule.

Summary
1099s for canceled debts are a very complex subject and may result in consumer claims against creditors due to incorrect amounts, codes and credit reporting.

MANY consumers will NOT be liable for any tax as they are INSOLVENT.

Complete the IRS worksheet to determine whether you are insolvent: IRS-Insolvency-p4681-opt.pdf

If you previously paid tax on a forgiven debt while you were insolvent, keep in mind that you may be able to AMEND your tax returns.

[slvnomore]

this is the best latest info I can find. I looked on nolo. google etc.

anything more we can learn about this?

[slvnomore]

http://creditfactors.com/2013/03/only-forgiven-principal-is-subject-to-a-1099-c-upon-settlement-or-non-payment-no-tax-if-you-were-insolvent/#more-944

according to the link above, if you go to the bottom.

It seems clear. if you have and A-G code on your 1099-c
the debt is truly cancelled.

If you have an H on your code it is not.

Is that not 100% correct? Thx!

[justbroke]

That is what I wrote above. The problem is, the creditor may "accidentally" (or "on purpose") sell the debt to a Junk Debt Buyer (JDB) that has no clue about the 1099-C. This is why I said that should a creditor or JDB attempt to collect the debt that was forgiven, and the event code is A-G or I, then you should send them a copy of that 1099-C and a polite letter telling them that they can't collect a canceled (and discharged) debt.

The reason why there is so much mis-information about this topic is precisely why you should keep copies. Some companies just don't play by the rules. We must keep them in check by responding with "proof" that the debt was canceled (discharged). (Even on the page you point to, it reads that "Receiving a 1099 does NOT necessarily mean that the creditor will stop collecting and you can even be SUED for the debt!".

Again, keep good records. Fight off zombie debt from JDBs by having these 1099-C copies ready to use as proof that the debt was canceled (discharged). I don't know what else to tell you.

[keepsmiling]

I just got one too, from Chase. It's okay to say names of banks here
Kind of a mixed blessing. I may get a tax hit since I do have a 401k. Rock and hard place every single day.

[DYLAN150]

I just received 2 from B of A. Last year I received 3 from Chase. I stopped paying my credit cards almost 3 years ago. I have tried to remove the balances from my credit reports with no luck.