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Home > Ask The Get Out of Debt Experts > 1099 > I Don’t Understand Why My Creditor Will Send Me a 1099C for Forgiven Debt. – Christina

I Don’t Understand Why My Creditor Will Send Me a 1099C for Forgiven Debt. – Christina

“Dear Steve,

After being unemployed for 9 months,- got a job at apercentage of my former pay, and started working on payment plan with creditors. The only people Idid and could not pay were. The of my credit card companies who refused to settle or agree to resonable payment plans based on what I could afford. Got in volved with a settlment company (Allegro, no less) which I am out of, and have called the comapnies to try and work something resonable out now. One is listening, others are still talking lawsuits as they did a year ago. My question is what is the rule for the 10999. Companies write off bad debt anyway, so why would they incur legal fees to pass on to the consumer, instead of making a clean break of the debt. Please note that I have had a wonderful experience with Citibank, who worked with me based on my income and – am about to complete a two year payment plan in March. No lawsuit, clean break.

(1) Explain the reality of the 1099C in terms of the credit card industry, and one is not issued for the full amount due at times.

(2) Advise for someone who is in risk of law suits, because the heafty downpayments that creditors are asking for in not affordable.

Christina”

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The Answer

 

Dear Christina,

The 1099C is required to be submitted to the IRS when more than $600 of debt has been forgiven by a creditor. This is a tax issue, not a creditor issue. You may be required to pay your regular income tax rate on the amount of debt forgiven as if you earned the money. So if you default on debt due, or you settle your debt for less than is due, a 1099C will be issued and reported to the IRS. Additionally, a 1099C being issued does not absolve you of the forgiven debt. It is an accounting and tax function. Unless the creditor has specifically notified you that the money is forgiven and not due, they can come back at some point in the future and collect.

The only way to avoid lawsuits and break the tie to the debt is with bankruptcy, or by paying the debt as originally agreed or in full.

Your confusion here is understandable. You are looking at your situation logically. Creditors don’t do that. They look at consumers as a process. People behind get threats and sued. People who don’t meet certain arbitrary thresholds get sued. It does not cost the creditor any more to sue you than someone else. They dump consumers into a big bucket they pay for and those in the bucket get sued. There is no financial incentive not to sue.

Please update me on your progress by posting updates here in the comments section of your question. I’m very interested in how this works out for you.

Big Hug!

I Dont Understand Why My Creditor Will Send Me a 1099C for Forgiven Debt.   Christina
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I Don't Understand Why My Creditor Will Send Me a 1099C for Forgiven Debt. - Christina by

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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
  • Jim

    Christina- if you are interested, the real question for which you need an answer is: is my cancellation of income taxable? Unfortunately, this depends on your facts and circumstances- some help can be found here: http://www.irs.gov/taxtopics/t

    Generally, credit card forgiven debt is taxable unless you have an exclusion that is reported on Form 982 when you file your tax return.

  • Jim

    Christina- if you are interested, the real question for which you need an answer is: is my cancellation of income taxable? Unfortunately, this depends on your facts and circumstances- some help can be found here: http://www.irs.gov/taxtopics/tc431.html

    Generally, credit card forgiven debt is taxable unless you have an exclusion that is reported on Form 982 when you file your tax return.

  • Christina

    Steve,
    Thank you for your response. It was helpful in understanding where they are coming from.

    Funny enough, I have an update on two of the accounts:

    Account A: After much deliberation about the affordability of their 25% down payment, asked me to call back after the holidays. This way they can see if my using my tax returns can help with the payment. But they cannot stay the possible filing of the lawsuit.

    Account B: Asked for a hardship plan. They informed me that me that they have already done a financial work up on me, and found that I have $5,000 in a bank somewhere. After quizzing them on this information, I realized they were talking about a credit card of mine that has been closed for months. (FYI. I carried zero balances on most of my cards, and as with the rest of America, they got closed by the issuers…and crushed my credit). So that did not work, nor was I going to provide them with my bank information for a post dated check, for an issue that they needed to resolve in 1hr.
    The conversation ended with the fact that it is going to litigation, and that they will be placing a lien on my property, being that I live in California.
    According to them, the lien will not allow me to sell or refinance the property. Neither of which I plan or have a need to do anyway. So I am thinking it will go to court on a judgment, giving me an opportunity to show proof of trying to work with them for a year and my status with creditors that worked with me. Also it will provide me time to accumulate some funds, get a good lawyer, and finally resolve the issue.

    If you have any further insight on the effects of liens on property, to add to my research,I will truly appreciate it.

    Christina

    • http://GetOutOfDebt.org Steve Rhode

      Christina,

      I’m not surprised they wanted you to put your debt on another card. It happens, a lot.

      Don’t be fooled that going to court gives you an opportunity to rest on an explanation or chance to be treated ‘fairly’. The judge has to make his decision as a matter of law. Were you in default of the contractual agreement you signed, for any reason, if so, you lose.

      To block the lien you should consider bankruptcy before it gets to that stage. If you kill the debt with bankruptcy they can’t get a lien but it is my understanding that a bankruptcy can’t remove a lien already placed.

      The lien will not prevent you from selling the property but it will have to be satisfied to clear the title to transfer the property. It will also sit there and accumulate interest and the amount due when you sell will be substantially greater than the original amount of the lien.

      Steve

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