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cancelled debt shows charge off/collection


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I bought a home thru USDA/Rural development and sold it 6 months later which left a balance owing USDA of about 8 or 9k. They sent me a letter stating "after careful consideration, cancellation of the balance remaining on your debt has been approved. Please note that the balance of the debt has been canceled and may be reported to the IRS or the credit reporting agencies". It does not say collections, it does not say bad debt, it says 'cancelled'. I sent this letter to TU because the tradeline was listed as:


Date updated: 7/2005

High Balance: $75,500

Terms: 396 montly $512

Pay Status: Charged off as bad debt

Acct Type: Mortgage

Reps: Individual

Date Open: 12/2001

Dated Closed 3/2003

TU investigated and now has the tradeline listed as:

Balance $0

Date Verified 1/2006

High Balance: 75,500

Terms 396 montly $262

Pay Status: Payment after charge off/collection

Account type: Mortgage

Responsibility: Individual acct

Date open: 12/2001

Date Closed: 2/2003

Date Paid: 2/2003

What do I do next with this? The original letter sounds like it was a forgiven debt. I need some help with this one. Thanks.

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The debt was not forgiven, the lender gave up trying to collect the money, so it was "Charged off". You are very lucky that when this was reported to the IRS, it was not caught in their system, as they have been known to tax you on the 8K as "profit". Their theory is that you had a gain when the debt was charged off. Discover card is nasty this way also, in that they will report their charge offs to the IRS, and then IRS sends the borrower a tax bill.


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You need more information before you jump to conclusions Mr. Mortgage..I was sent a 1099 and I was taxed on 8,000 and I did pay on it. Also, this amount was never attempted to be collected because when I told them I had cancer and had to sell the home to move near my children, combined with the fact that I had lived in the home for more than 6 months, improved the property well over 8,000k worth, and the home resold at approximately 5,000 over what I paid for it 6 months earlier, they said they would not ask me to pay the subsidized portion of the house payment they had been paying. You know this type of home loan is a subsidized loan whereby they pay a portion of the house payment and I pay a larger portion. In the interim they keep tallying up their part and then have stipulations about not selling the home for a certain amount of time and the home owner repays the subsidized portion of the house payment. So let me make it clear that no one got "tired" of "trying to collect" so they charged it off. There was no collection effort.

Thank you for your opinion.

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