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What Happens When a Collection Agency Issues You a 1099? – Charlotte

“Dear Steve,


What happens when you are issued a 1099 from a collection agency? I’m worried come tax time we will owe a lot of money to the IRS. Help!


Dear Charlotte,

The only reason you would be issued a 1099 would be if your debt was written off as uncollectible or you settled a debt.

I had the following questions that I’d like for you to answer before I can answer your question. Please post your answers in the comments section of your question. I’m looking forward to helping you for free.

  1. What is your situation?
  2. How much debt is being forgiven?

As soon as you can post the answers to my questions above I’ll be able to help.

If any reader wants to offer advice in the comments section please feel free to participate.


You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.

See also  Payday Lender is Threatening Me With a 1099-C IRS Form. - Julia

About the author

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.


  • The downside to that approach was you lost the benefit of the history on the cards. Your payment history is a big factor moving forward. Now that the cards have been closed you lose the past benefit.

    The best path forward to improve your credit history is to pay as agreed.


  • This is not true. When I left college, I owed about 5 credit cards ranging from 5k down to 500 dollars. I went through a non-profit group out of Florida and they worked out a deal with all of the credit cards. I would no longer use any of them and for that all of the interests were reduced greatly and the 5k card went to a 0%interest. I paid an agreed amount by money order to that non-profit and they in turn paid each of the cards their due. As each card was paid off, it was closed. I checked my credit b4, during and after and it was never affected by this process. It was the best thing ever to get out of debt that might have become a huge mess.

  • Steve,
    Regarding Charlotte’s October 2009 posting about a collection agency 1099-c, was there any conclusion about the legality of a collection agency issued 1099-c? Can they do this legally? What are the legal boundaries of doing this? I previously had one in 2008, reported it and paid it. Now a phantom 1099c has appeared from 2008 and no one can clarify what it is at the agency or IRS. I see that statue of limitations exist, original creditors can only send 1099-c, or not? This is very confusing, let alone determining the lititimacy of this debt.

    • Don,

      Only the owner of the debt can issue a 1099 since they are the only entity that forgave the debt. It is possible that the debt was sold and owned by the collection industry.

      What do you mean when you can “phantom 1099?”


  • Charlotte,

    I was going to spew all this collections settlement lingo however I changed my mind.

    1. The only thing that will save your credit is to pay on time every time.
    2. I dont believe you will see a collection angency in the near future.

    Lets say you allow it to fall behind to go to collections they are not going to just send it there they don’t do that.
    Why would someone send an account that has the possibilities of generating revenue of close to $30,000.00
    To a collection company who typically buys debts for pennies on the dollar. They only sell the debt if you don’t pay and my dear on 40k they would sue you first unless you live in TX.

    Chase does their own collections they have a main collections dept. in Columbus Ohio where I did settlement and I have friends that work there they typically will not allow an account that high go to collections. I’m sorry this may not help you but here is what I want you to think about and I believe it is in you and your husbands best interest.
    • Look into the equity on your home if your father doesn’t have enough to lend you
    • Barrow against life insurance
    • 401k
    • Any kind of savings
    • Borrow from more than 1 person.
    • If you are current on all of your payments think about doing a fixed rate balance transfer put the funds your father is going to loan you down and dwindle it away in the time you have on your fixed rate typically an account that high I would negotiate a year term.

    The worst thing you could do for your credit is Bankruptcy the second is settlement in my eyes. You will not settle on a current account.

    Hope this helps.


  • Back in December of 2007, I paid off a debt with a collection agency. I filed my taxes in february. I never received my 1099-c. I was not aware that the 1099-c would be sent. I just got a notice from the Irs stating I owe them 465 dollars since they filed the 1099-c. Can they do this. What can I do?

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