My 1099-C Has a Code F and Code G On It

Question:

Dear Steve,

My wife got 2 1099-C’s this year (1/30/2021). One had an identifiable date as 12/31/2017 and Identifiable Code G and the other had 12/31/2020 the date and a Code F.

2nd creditor (code F) had sold this account to 3rd party debt collector about two years before and we had no agreement with them as Code F states and the other creditor with Code G is stating the debt has been canceled but reporting it 3 years later

Can the third-party debt collector from creditor code F still collect this debt AND what do we do with the fact that we never agreed to anything as a CODE F with the creditor? Is there code wrong and should have been G?
Can the Code G creditor sell that account now that they claim it is canceled?
Should we use a 928 for insolvency as she was insolvent so we do not have to pay taxes on this?
if the creditors have filed these wrong can we contact the IRS about it and should we?

Terrence

Answer:

Dear Terrence,

This is pretty close to a question I answered yesterday. See this post to learn why a 1099-C can resurface years later.

The codes you are describing are the identifiable event codes from Box 6 on Form 1099-C. For other readers, here is what they mean.

Code A — Bankruptcy. Code A is used to identify cancellation of debt as a result of a title 11 bankruptcy case.

Code B — Other judicial debt relief. Code B is used to identify cancellation of debt as a result of a receivership, foreclosure, or similar federal or state court proceeding other than bankruptcy.

Code C — Statute of limitations or expiration of deficiency period. Code C is used to identify cancellation of debt either 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. In the case of the expiration of a statute of limitations, an identifiable event occurs only if and when your affirmative defense of the statute of limitations is upheld in a final judgment or decision in a judicial proceeding, and the period for appealing the judgment or decision has expired.

Code D — Foreclosure election. Code D is used to identify cancellation of debt when the creditor elects foreclosure remedies that statutorily end or bar the creditor’s right to pursue collection of the debt. This event applies to a mortgage lender or holder who is barred from pursuing debt collection after a power of sale in the mortgage or deed of trust is exercised.

Code E — Debt relief from probate or similar proceeding. Code E is used to identify cancellation of debt as a result of a probate court or similar legal proceeding.

Code F — By agreement. Code F is used to identify cancellation of debt as a result of an agreement between the creditor and the debtor to cancel the debt at less than full consideration.

Code G — Decision or policy to discontinue collection. Code G is used to identify cancellation of debt as a result of a decision or a defined policy of the creditor to discontinue collection activity and cancel the debt. For purposes of this identifiable event, a defined policy includes both a written policy and the creditor’s established business practice.

Do You Have a Question You'd Like Help With? Contact Debt Coach Damon Day. Click here to reach Damon.

Code H — Other actual discharge before identifiable event. Code H is used to identify an actual cancellation of debt that occurs before any of the identifiable events described in codes A through G. – Source

So we have two choices on how to deal with this.

The first would be to go back to the IRS and claim the 1099 forms are incorrect. You have to call the IRS and open a case about that. Good luck.

If your wife was insolvent in the year the 1099-C form is reporting, the easier way to deal with this is to read How to Deal With a New 1099-C Issued on Old Debt Using Little Known IRS Form 4598.

You can be right or you can be done with this. The choice is yours.

But on an interesting note, you asked if a creditor can sell a debt they claim is canceled. They might have had to label it as canceled for tax reporting purposes but that does not alter the underlying agreement if it is still active. And the more common situation is there are some debt buyers that routinely buy expired debt and attempt to collect on it because people often pay on those debts when they don’t have to.

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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.

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