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

[treehugger1]

I received 1099 C's from Cap1, BA, and an out-of-state credit union. I was audited by the IRS requesting justification of insolvency. By the time I added up all my student loans, and all outstanding non-SOL and non-1099'd debt, I was very insolvent.

The IRS sent me an acknowledgment letter and closed the case.

In the future, the auditor told me it was a good idea to submit my insolvency worksheet and a personal financial statement of assets/liabilities with my tax forms. This is hard to do when we all file electronically now, but I think it is good advice.

[keepsmiling]

Hey tree, really miss seeing you around here. You are my hero
Refresh my memory.... you have some kind of retirement account, correct? But it is exempt for some reason?
I got my 1099 today and hold out the tiniest hope that somehow my 401k will be exempt. Any thoughts on what, exactly, would make it so?

[treehugger1]

Hey Keep smiling, Yes, I am in the final (6th) year stretch for SOL on all remaining debt.

When you mentioned exempt, I am not sure what you are referring to. Your accounts should be exempt from any seizure activity other than restitution for felony, child support, and/or alimony.

When it comes to showing your personal assets for IRS reporting, you need to list your 401/403/457/etc amounts. I have several "pension" type of accounts from logging and timber companies. Their liquid value is nothing, but the long-term annuity value is extremely high. My 403/457 amounts are not as high and they were not enough to put me over the insolvency test. According to the IRS person I worked with, I did not have to determine a "present value" for the timber company's pension accounts. Assets and retirement accounts are complicated. If you have questions related to insolvency and taxes for 1099C you might best give the IRS a call. Or, you might find an inexpensive tax CPA to help you.

My situation was "simple."

[treehugger1]

I should add that I am not sure the IRS representative knew all the ins-and-outs of insolvency, but I did sense that they did not seem all that excited about going to a federal tax court over some several thousand dollar 1099c!. LOL. Even the local IRS auditor has a budget. I am not sure if this helps, but in my case, quantifying my pension amounts was almost impossible. Other pension accounts and optional retirement accounts had to be included in my assets.

If I were to receive a 1099 for 2013, everything might be different. My optional retirement accounts are up anywhere from 19% - 34%. I am not sure I would meet the insolvency rules for 2013.

[keepsmiling]

I think I am pretty much screwed
Funny how your retirement money can be a mixed blessing.
Not sure, but I think it precludes charity care too.

[slvnomore]

GOT MY 1099's

got 3 of them from the same bank.

they all say:

1) date of identifiable event 4/2013
2) amount of debt discharged 30k for 3
3) interest 0
4) credit card
5) was borrower personally liable for repayment of debt? YES
6) Identifiable event code. G
7) fair market value of property 0

Questions:

a) What does 5 mean?

b) if in understand this correctly code G means the debts are truly cancelled and will not be resold, correct? Thx.

[tobee43]

unless the debt is discharged they there is no concern. people are confusing codes as jb states just attach a 982....1099I for example are for interest one must claim. G's codes are usually governmental write off debts. i think people are getting confused by what is referred to here as codes....there are many types of 1099s from A's to S's. all meaning something different, as an example an S is usually for a capital lose. it's confusing i know, however most people on this forum are usually dealing with either C's or A's. so when you are referring to these codes you mean the lender's explanation.

c are usually for credit cards....and a's are for real estate.

[slvnomore]

Ok to clarify.

the 3 1099's i received are 1099C for Credit card
the EVENT CODE is G

Question:

I really don't understand how

1) we can get a 1099 with a code like G

2) we file insolvency for the full amount.

3) How could it possibly still be collectable?

4) oc CC got the charge off, you declared insolvency. Seriously, how could it still be collectable?

I mean does that mean you should you declare Bk instead of insolvency, because you will never know for real if it will be collectable
some day or ever really go away ? I don't get it.

[LadyInTheRed]

Ok to clarify.

the 3 1099's i received are 1099C for Credit card
the EVENT CODE is G

Question:

I really don't understand how

1) we can get a 1099 with a code like G

2) we file insolvency for the full amount.

3) How could it possibly still be collectable?

4) oc CC got the charge off, you declared insolvency. Seriously, how could it still be collectable?

I mean does that mean you should you declare Bk instead of insolvency, because you will never know for real if it will be collectable
some day or ever really go away ? I don't get it.

You don't get it because it is as clear as mud. Re-read JB's earlier post that I've pasted below, especially the Forbes article. Yes, the best way to ensure you can easily fight any future collection attempt is to file BK. There is nothing as effective as a BK Discharge to get a creditor to leave you alone.

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-restructurin...-Tenn-2013.pdf

[LadyInTheRed]

Here is the IRS' explanation of all 1099C event codes:

When Is a Debt Canceled

A debt is deemed canceled on the date an identifiable event occurs or, if earlier, the date of the actual discharge if you choose to file Form 1099-C for the year of cancellation. An identifiable event is one of the following.

1. A discharge in bankruptcy under Title 11 of the U.S. Code. For information on certain discharges in bankruptcy not required to be reported, see Exceptions,later. Enter “A” in Box 6 to report this identifiable event.

2. A cancellation or extinguishment making the debt unenforceable in a receivership, foreclosure, or similar federal nonbankruptcy or state court proceeding. Enter “B” in Box 6 to report this identifiable event.

3. A cancellation or extinguishment when the statute of limitations for collecting the debt expires, or when the statutory period for filing a claim or beginning a deficiency judgment proceeding expires. Expiration of the statute of limitations is an identifiable event only when a debtor's affirmative statute of limitations defense is upheld in a final judgment or decision of a court and the appeal period has expired. Enter “C” in Box 6 to report this identifiable event.

4. A cancellation or extinguishment when the creditor elects foreclosure remedies that by law extinguish or bar the creditor's right to collect the debt. This event applies to a mortgage lender or holder who is barred by local law from pursuing debt collection after a “power of sale” in the mortgage or deed of trust is exercised. Enter “D” in Box 6 to report this identifiable event.

5. A cancellation or extinguishment making the debt unenforceable under a probate or similar proceeding. Enter “E” in Box 6 to report this identifiable event.

6. A discharge of indebtedness under an agreement between the creditor and the debtor to cancel the debt at less than full consideration (for example, short sales). Enter “F” in Box 6 to report this identifiable event.

7. A discharge of indebtedness because of a decision or a defined policy of the creditor to discontinue collection activity and cancel the debt. A creditor's defined policy can be in writing or an established business practice of the creditor. A creditor's established practice to stop collection activity and abandon a debt when a particular nonpayment period expires is a defined policy. Enter “G” in Box 6 to report this identifiable event.

8. The expiration of non-payment testing period. This applies only to entities described in numbers 1, 2, 3, or 4 under Who Must File, earlier. This event occurs when the creditor has not received a payment on the debt during the testing period. The testing period is a 36-month period ending on December 31, plus any time when the creditor was precluded from collection activity by a stay in bankruptcy or similar bar under state or local law. Enter “H” in Box 6 to report this identifiable event.

The creditor can rebut the occurrence of this identifiable event if:

a. The creditor (or a third party collection agency on behalf of the creditor) has engaged in significant bona fide collection activity during the 12-month period ending on December 31, or

b. Facts and circumstances that exist on January 31 following the end of the 36-month period indicate that the debt was not canceled.

Significant bona fide collection activity does not include nominal or ministerial collection action, such as an automated mailing. Facts and circumstances indicating that a debt was not canceled include the existence of a lien relating to the debt (up to the value of the security) or the sale or packaging for sale of the debt by the creditor.

9. Other actual discharge before identifiable event. Enter “I” in Box 6 if there is an other actual discharge before one of the identifiable events listed above.

http://www.irs.gov/instructions/i1099ac/ar02.html#d0e419

[tobee43]

thanks for all that work LITR!

[LadyInTheRed]

thanks for all that work LITR!

That was hardly any work at all. Just a little cut and paste.

[tobee43]

That was hardly any work at all. Just a little cut and paste.

well it sounded great!!! and clarified for many!

[slvnomore]

7. A discharge of indebtedness because of a decision or a defined policy of the creditor to discontinue collection activity and cancel the debt. A creditor's defined policy can be in writing or an established business practice of the creditor. A creditor's established practice to stop collection activity and abandon a debt when a particular nonpayment period expires is a defined policy. Enter “G” in Box 6 to report this identifiable event.

So if you got a G you have the debt cancelled, and they can't sell it. correct? Then you check into filing insolvency.

[LadyInTheRed]

So if you got a G you have the debt cancelled, and they can't sell it. correct? Then you check into filing insolvency.

For purposes of the income reported on the 1099C, you need to determine if you are insolvent and, if so, check that box on form 948 and attach it to your income tax return.

As far as the weather the creditor can sell the debt or try to collect it later, see posts 24 and 25 above. It is an unsettled question. Read the Forbes article and the court opinion in the Reed case that ruled against the bank who filed the 1099-C but then filed a creditor's claim in BK saying that the filing of 1099-C didn't mean they really cancelled the debt. Note that the court points out that it is in the minority. Other courts have ruled that the 1099-C does not necessarily mean the creditor cancelled the debt. The Reed case is in one Tennessee district court. Do you live in the same district? It is not precedent for other courts, meaning other courts don't have to follow the ruling.

If you don't file BK, it is possible you will never hear from this creditor again. It is also possible that the creditor will try to collect later or sell the debt. If somebody tries to collect, you can send them a copy of the 1099-C and argue that they discharged the debt. They may sue you anyway in which case you can make the argument in court. You may or may not win in court.

If you file BK and list the creditor, there will be no question that the debt is discharged in BK. If the creditor or somebody who buys the debt later tries to collect the debt, you'll send a copy of your BK discharge and tell them that they are violating the BK court's permanent injunction against collection. They will most likely go away. If they don't, you can sue them and get damages for their violation of the court order.

There is nothing as strong as a BK discharge to stop collection activity in its tracks.