Does Credit Card 'Charge Off' trigger 1099 ?

[OHBOY]

As I may not be filing for BK any time soon ( if ever ...?) I am wondering the following:
IF a credit card company 'charges off' the debt, will it trigger a 1099, meaning: will I recieve a 1099 ? ( ...and I am not talking about any sort of repayment & debt reduction here).

I understand that the debt would not be discharged ( most likely sold...) and that it basically is a bookeeping manuver that the credit cards use, however everywheres I have looked to double check & to make sure that no 1099 would be issued I find answers that are vague and that now make me feel very uncertain on that type of scenario.

Anybody happens to know the answer ? ( yes, I know a CPA would know...)

[AngelinaCatHub]

No it should not happen. It is an unsecured debt and holds no value. In the event let's say, that you get a loan compromise on a home mortgage and they drop $100K of your mortgage (forgive it so to speak) then you will get a 1099 as it is an implied income.

Implied income, this too will come, when it crosses 'Bammy's mind to do so. "You could have purchased a Cadillac, so we will tax you for not doing so. etc. ...

Sorry, my anger is showing about transparency in government. 'Hub

EDIT: congrats on your 100th post.

[OHBOY]

'Hub' quoted: "Sorry, my anger is showing about transparency in government. 'Hub

EDIT: congrats on your 100th post."
__________________________________________________ ______________

Thanks for your input, ON EVERY LEVEL !
BTW, no appology needed for any comments about 'Bammy'....in my book I have much stronger adjactives for this character....

Also, I have no idea as to how I ended up with 100 posts. Definately did not post that many actual individual posts or replies. The numbers must add up in some other fashion (similar to cc's ?...)

[JustFileSuit]

[QUOTE=AngelinaCatHub;361833]

... then you will get a 1099 as it is an implied income.

I suspect what you intend here is the accounting/economics concept of "imputed" income. Income is imputed when there is no actual cash coming into your hands, yet nonetheless you receive a funds equivalent. In theory, a debt such as your unpaid cc account which is written off becomes imputed income to you. Yes, they can and probably "should" send you a 1099 but it does not seem that they do so. I rather suspect the reason is that, IF they send you a 1099, THEN the cc account cannot be sold to the bottom-feeders (the value was transferred to you as imputed income!).

Implied income, this too will come, when it crosses 'Bammy's mind to do so. "You could have purchased a Cadillac, so we will tax you for not doing so. etc. ...

I think what you are referring to here is an imputed receipt. There are all kinds of imputed receipts, or benefits, woven into our society. For example, when you finance a home with a mortgage loan and you also have taxable income, you are granted a mortgage interest tax deduction. In effect, the government is paying you to have a mortgage! that is an imputed receipt to you, or imputed income, which should be taxed as any other income, but nobody complains because the benefit structure has not percolated into our collective consciousness as imputed income!

Where it gets really tricky is the case where you have a home, all paid for, no loan outstanding, say owned by your parents, and they let you live in it for free, so you get what economists term an "imputed rent" benefit. Should the imputed rent be treated as a taxable benefit? Logically, of course it should; yet politically, this is not done in this country. (I vaguely recall reading that in Chile they do this; could be wrong).

And therein lies the conundrum: if your ox is being gored, you yelp; if it is someone else's ox, then you don't (all metaphorically speaking, of course).! But that is what taxation is: a goring of oxes. Is it equitable? Nope. It is a function of which economic group has the most votes. We do not tax imputed rent, and we grant tax benefit to owners with mortgage interest as deductions, because we have more owners than renters in the US. Economists shake their heads; politicians just smile.

[OHBOY]

Quote:"Yes, they can and probably "should" send you a 1099 but it does not seem that they do so. I rather suspect the reason is that, IF they send you a 1099, THEN the cc account cannot be sold to the bottom-feeders (the value was transferred to you as imputed income!)."


Most interesting !
So the next question would be: IF the cc do not send a 1099 because they want to sell the debt after 'charge off', is the possible issuance of a 1099 therefore shifted to a 'bottom-feeder' ? ....and at what amount, original debt amount, sold amount, with or without fees, interest, 'penalties' (fictitious or not..), and when ? (would SOL apply ?)

All told, if CC or 'Bottom Feeders' are in fact expected to issue a 1099 after they 'charge off' than it would indeed be an important reason to file for bk BEFOREHAND as it would make the knowledge of being 'collection proof' irrelevant since the taxes would bite one in the butt....

[Dst1]

A 1099 is ONLY issued if the person who owns the debt accepts some payment that is less than the face value of the debt. When that is done the difference between the face value of the debt and what the lender accepted as "full satisfaction" for the debt is then reported on a 1099. As far as the IRS is concerned it is no longer imputed income but real income.

Legally, if the lender accepts an amount less than face value of the debt as full satisfaction of the debt and issues a 1099 they cannot sell the debt to a JDB because the debt has been fully satisfied. Despite that reality, sometimes they do so anyway. They do so because the person who is legally harmed by the sale is not you but the JDB. Of course, in reality you are harmed too because you have to go through the process of proving to the JDB that you have no legal obligation to pay them. JDB will buy debt that they have no legal right to collect simply because they figure that it is often cheaper for you to settle the debt than to take on the hassle.

As for you second question, The 1099 would reflect the difference between the face value of the debt and what you paid to settle it (regardless of who you paid it too).

[AngelinaCatHub]

A 1099 is ONLY issued if the person who owns the debt accepts some payment that is less than the face value of the debt. When that is done the difference between the face value of the debt and what the lender accepted as "full satisfaction" for the debt is then reported on a 1099. As far as the IRS is concerned it is no longer imputed income but real income.

Legally, if the lender accepts an amount less than face value of the debt as full satisfaction of the debt and issues a 1099 they cannot sell the debt to a JDB because the debt has been fully satisfied. Despite that reality, sometimes they do so anyway. They do so because the person who is legally harmed by the sale is not you but the JDB. Of course, in reality you are harmed too because you have to go through the process of proving to the JDB that you have no legal obligation to pay them. JDB will buy debt that they have no legal right to collect simply because they figure that it is often cheaper for you to settle the debt than to take on the hassle.

As for you second question, The 1099 would reflect the difference between the face value of the debt and what you paid to settle it (regardless of who you paid it too).

Yes. That is exactly what I was trying to explain. You did a far better job. Thank you. 'Hub

[JustFileSuit]

So the next question would be: IF the cc do not send a 1099 because they want to sell the debt after 'charge off', is the possible issuance of a 1099 therefore shifted to a 'bottom-feeder' ?

Short answer: NO.
Reason: the bottom-feeder did not obtain the debt for value. they do not get a 1099 from the original company, and they do not issue a 1099 as they are not the originator of the contract. You could in theory maintain that they "should" issue a 1099 for the 6 cents they paid for the debt, if they abandon it, but in practice they do not do so. Never happens.


.

...and at what amount, original debt amount, sold amount, with or without fees, interest, 'penalties' (fictitious or not..), and when ? (would SOL apply ?)

the Statute of Limitations kicks in for the time period AFTER the last payment you make on the debt, to whoever is claiming to Hold it. e.g. the cc company sells to the bottom-feeder, and YOU make a payment to the feeder, and then if the SOL is six years, then Six Years after your payment to the Feeder the SOL creates estoppel.

All told, if CC or 'Bottom Feeders' are in fact expected to issue a 1099 after they 'charge off' than it would indeed be an important reason to file for bk BEFOREHAND as it would make the knowledge of being 'collection proof' irrelevant since the taxes would bite one in the butt....

Any taxes assessed are also dischargable in bankruptcy. Not to worry.

NOTE: all this has a bit of the flavor of a theoretical discussion. As a practical matter, I do not see the CC outfits or their successors issuing a 1099.

I have seen 1099's issued for commercial transactions, e.g. a phone company issuing one to an insolvent retailer for yellow-pages advertising that goes unpaid. the reason is that they sold an intangible -time-valued ad space - and paid a sales commission, so the 1099 provides the foundation to in effect have the government pay the sale commission, through the tax deduction!

[JustFileSuit]

[QUOTE=Dst1;361885]

A 1099 is ONLY issued if the person who owns the debt accepts some payment that is less than the face value of the debt.

To be completely accurate, I would add: "...or if the creditor receives nothing at all (in which case the 1099 is for the full value)."

When that is done the difference between the face value of the debt and what the lender accepted as "full satisfaction" for the debt is then reported on a 1099. As far as the IRS is concerned it is no longer imputed income but real income.

Sad but true. the IRS is a stickler for charging you income tax on the written-off debt. And that can be a real problem.

Legally, if the lender accepts an amount less than face value of the debt as full satisfaction of the debt and issues a 1099 they cannot sell the debt to a JDB because the debt has been fully satisfied.

Readers should note that this analysis is trenchantly accurate.

Despite that reality, sometimes they do so anyway. They do so because the person who is legally harmed by the sale is not you but the JDB. Of course, in reality you are harmed too because you have to go through the process of proving to the JDB that you have no legal obligation to pay them. JDB will buy debt that they have no legal right to collect simply because they figure that it is often cheaper for you to settle the debt than to take on the hassle.

However, if you have the guts for this, you can always sue the "JDB" and collect damages. Among other claims, they are engaging in an Unfair Trade Practice.

[OHBOY]

Quote by 'JustFileSuit': "NOTE: all this has a bit of the flavor of a theoretical discussion. As a practical matter, I do not see the CC outfits or their successors issuing a 1099. "

I truly appreciate the 'theoretical discussion' very much. Personally, I always prefer to get an idea as what to expect "IF"... and than decide which road is best to take.

Also, I thought I understood all of your valuable input, UNTIL I was 'thrown off' again, when I read :

Quote: "
JustFileSuit [QUOTE=Dst1;361885]
Quote:
A 1099 is ONLY issued if the person who owns the debt accepts some payment that is less than the face value of the debt.

To be completely accurate, I would add: "...or if the creditor receives nothing at all (in which case the 1099 is for the full value)."


When you added the part about "in which case the 1099 is for the full value" does that refer back to your former quote : "Yes, they can and probably "should" send you a 1099 but it does not seem that they do so." ?

Please forgive me for sounding a bit deft....just trying to see 'things' as clearly as possible.

BTW...THANK YOU A-L-L FOR YOUR ALL OF THE TIME CONSUMING INPUT AND HELP YOU HAVE PROVIDED !!! Much appreciated !!!

[JustFileSuit]

Purpose of a 1099

A 1099 is issued to you for "miscallaneous income." the usual generators are where an independent contractor does some work for you but is not a full-time employee with wage deductions withheld at source. SO: a 1099 is a "catch-all" for your income, and includes what economists terms "imputed income."

When you borrow money, and that includes the case where you borrow money from a cc issuer to purchase goods, and you do not pay it back, then you are inferred to have received money. That is "imputed income," and the IRS treats imputed income as ordinary income. SO: should your non-payment attract a 1099? Well, technically correct, yes, but in practice, no. And one of the reasons is that if they issue you a 1099 then there is no further debt: you are treated as if you "earned" the money from some labor, same as if you were a home contractor and painted the dd company office building.

THUS, once again: you "could" get a 1099 for either the part you do not pay, or for all of it if you pay nothing at all, but in practice nobody seems to be doing this. So it is very much a theoretical discussion. Not to worry about.

Enjoy Christmas and "pour yourself an egg-nog!"

[Dst1]

The reason is that in the context of BK it's almost never the case that there is a debt where nothing has been paid on. That's why I didn't add the caveat JSF did. After all, if you borrow the money and never pay a single cent back there are issues of fraud to consider because it's doubtful whether you had any intention of paying it back and thus it would not be a bona-fide loan to be discharged in BK.

In other words, in the context of a BK, if you borrow money and never pay a single dollar back you have bigger worries than a 1099. No rational company is going to charge off a debt which they have a plausible case that it should not discharged in BK because of fraud.

[OHBOY]

JustFileSuit:..THANKS ! got it...finally.

'Yuk' to the eggnog ( unless it comes in milk chocolate covered candy), but.. 'Hallo' to Southern Red (wine)..Cheers, Salute, Prost !

Merry Christmas to you too, hopefully with good Health and in Peace.

[OHBOY]

THANKS TO ALL !!! and...Merry Christmas to everybody on this board, in Health, Peace, and with hope for a prosperous New Year.

[JustFileSuit]

[=Dst1;362065]

The reason is that in the context of BK it's almost never the case that there is a debt where nothing has been paid on.

Sorry to disagree. this happens all the time. You make a purchase on credit; your banker has you in overdraft and calls your loan, shutting you down in terms of your solvency (happens especially in the case where the debtor is an entrepreneur with a big line of credit that he has personally guaranteed for the business). The banker, in one fell stroke, just made you bust. You file for bankruptcy protection.

That's why I didn't add the caveat JSF did. After all, if you borrow the money and never pay a single cent back there are issues of fraud to consider because it's doubtful whether you had any intention of paying it back and thus it would not be a bona-fide loan to be discharged in BK.

There is no "presumption of fraud." If the creditor wants to establish that, then he can question you at the 341 Hearing. It would start to look that way if the debtor was in Miami, bought a BMW, paid nothing, and loaded it into a shipping container and sent the car to Panama, then declared bankruptcy! Yep, this happened to me (and even under those circumstances the debt was discharged and no complaint of fraud by either me or the bankers was considered. Amazing.)

No rational company is going to charge off a debt which they have a plausible case that it should not discharged in BK because of fraud.[

The key is "plausible." You borrow 20K from a bank on an unsecured note, You hop on your motorcycle and crack it up. Now you are paralyzed from the waist down. You never end up paying a dime. No fraud; just bad circumstances. (Yup, this happened to a friend of mine. I gave up motorcycles after that one). All depends on the circumstances.