I have credit card debt and have received a 1099-C indicating that the company has canceled the debt.
This is not true — they are not only continuing to pursue it but have increased it beyond the amount indicated on the 1099-C.
If they had canceled the debt, the amount would not be taxable because I was insolvent.
Should I just ignore the 1099-C since the debt was not canceled, or should I raise the insolvency defense even though the debt was not canceled?
If you received a 1099-C and you are insolvent, you can deal with the tax issue by using IRS Form 982. That should alleviate any income tax you might have owed otherwise.
The other issue is a bit nuanced.
The 1099-C is a tax filing requirement but alone does not necessarily invalidate a debt. There are two issues here: tax reporting and another is attempting to collect a debt. You can still owe tax from a 1099-C debt, and it can still be collectible.
According to the IRS advice given to creditors “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. Other actual discharge before identifiable event. Enter “H” in box 6 if there is an other actual discharge before one of the identifiable events listed above.”
Look at the 1099-C Form
So take a look at your 1099-C form and see if it has any of those boded sections and codes on it.
There are three reasons why a collector may still pursue a debt.
1. They don’t care what the rules are and might just be attempting to pressure or intimidate you into paying.
2. The original creditor wrote off the debt as not collectible but sold the debt to a debt buyer pursuing collection.
3. You do not live in a state where the statute of limitations is a factor even if the creditor is playing by the rules.
So take a look at your 1099-C and tell me in the comments below what code, if any, is in box 6 on the form.