The Timeshare Canceled My Big Debt to Them. Now What? – Craig

Hi all,

I’ve been cleaning up the last of my debt over the past couple of years. I was planning to go and settle with a defaulted Timeshare at some point. But on Friday I received a 1099-C from the Timeshare canceling my $9500 balance on my debt. While on the one hand this is great news, it brings up a few questions.

1.) Will the 1099-C serve as enough proof of the debt being gone if it ever gets sold to a Collection Agency?

2.) If the Timeshare was resold, can they tax me on the whole balance? Is it worth fighting for?



Dear Craig,

The 1099-C is always a confusing issue. Many get it confused with some sort of termination of the debt. That’s not true. The 1099-C reporting of a cancelled debt is a tax obligation and does not invalidate the original underlying debt.

The debt can most certainly be sold to another party and the debt buyer may attempt collection and even sue you unless suit is prohibited by the statute of limitations or time-barred.

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If you have to pay tax this year for the forgiven debt and latter repay the debt, you can get some tax money back from the IRS. In IRS publication 525 they say:

Repayment of canceled debt. If you included a canceled amount in your income and later pay the debt, you may be able to file a claim for refund for the year the amount was included in income. You can file a claim on Form 1040X if the statute of limitations for filing a claim is still open. The statute of limitations generally does not end until 3 years after the due date of your original return.

If the timeshare is resold it seems to not be material to their claim they forgave your obligation to them for the debt. The sale would not offset your tax liability and really that’s all we are talking about here with a 1099-C.

See also  How Does a 1099-C Impact My New Tax Filing Status?

They should not report the forgiveness of more than the balance owed at the time the 1099-C was issued.

As I’ve published before:

“The court found that despite the statements and the 1099-C form, the debtor still had an obligation to pay on the past debt. Additionally, the court found that even if a creditor issues a 1099-C form, the form does not prohibit the creditor from pursuing collection of the old debt. Only a discharge from the Bankruptcy Court has the effect of canceling the debt and removing the debtor’s liability for the debt.” – Source

I’m always interested in alternative opinions on this issue. If you disagree with what I’ve said you should consult with a consumer attorney and/or a qualified tax advisor.

Please post your responses and follow-up messages to me on this in the comments section below.

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4 thoughts on “The Timeshare Canceled My Big Debt to Them. Now What? – Craig”

  1. Jim,
    What “sale” price are you referring to? The original purchase price or a sale of your ownership after it was cancelled. Basically, the timeshare selling it after the fact?

  2. Do not underestimate the collection agency´s ability to find you. their resources are almost unlimited to track down a delinquent debtor. If your interest is to settle, It is best to contact the timeshare resort who sent you to collections on the first place and negotiate a settlement. Usually, the customer service from the timeshare resort will try and get you to pay the contract in full and keep the contract so they can keep billing you to pay a long lasting, ever increasing, maintenance fee. Timeshare resorts know that they have the upper hand when it comes to credit ratings and can affect you easily. Unfortunately, you are guilty until proven innocent and it can take a long time to reinstate your credit rating if affected.

  3. We are in a similar situation as listed above. We received a 1099 – C from our timeshare company which listed $33,000 in Debt Foregiveness and $65,000 in FMV.  We have also received calls from several TimeShare Buyers / Consultants, probably from the same timeshare company, who want to buy our fractional ownership for $1000 final offer.  They don’t see the value of the property at anywhere near $65,000. We asked them to send us an offer in writing so that we can submit it to the IRS with our taxes.

    • Following up on my earlier comment, I spent over 90 minutes on the telephone with the IRS and discovered Pub Form 4681, 2011 Tax Form 8949 and Schedule D for my review. In quick summary, Vacation Ownership interest is only for use of property, not ownership of property. As the FMV is greater than the  Debt Forgiveness there is no Debt Foregiveness reportable in Federal Income Taxes. However, a “SALE” has to be reported on Form 8949 for the “SALE”price equal to the Debt Forgiveness. There is no loss reported (Code L) and Schedule D has to be submitted with your Federal Tax Return to acknowledge Form 1099-C. There is no additional taxes in my circumstance. I am not a tax accountant and I am only  suggesting that you review the instructions for the new 2011 form 8949 and Schedule D for yourself. Surprisingly, the IRS Agents were very helpful, but you don’t have to call to find out.


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