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Effect of 1099C on JDB/CA Collections


walterg55
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In 2005 I was caught in a financial crisis due to the hospitalization and death of my wife. I had 2 cars repoed by BMW Financial and sold with deficiencies. BMW has CO'd the amounts and sold the debt. A JDB/CA is now attempting to collect. I have just received written notices from the JDB/CA My questions are:

1. If BMW will issue a 1099c for the 2 amounts would this not stop the JDB/CA in their tracks? If not, why not?

2. How will a 1099c solution appear on a CR?

3. Should I DV?

I am aware that I would have to pay taxes but this is at most 30% of the total amount since this is taxed as income.

I am still recovering financially from paying over 750,000 in medical bills along with a almost a year away from work to handle my late wifes hospitalization and cannot pay the full amounts nor is BK an option due to my work or I would have done so before paying the hospital bills (long story but wife in critical condition at time and hospital forced payment under various threat to move her to charity hospital; bad situation). I cannot pay the amounts in question.

Thanks

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First...very sorry to hear of the death of your wife. Sounds like both the hospital and the JDB wants to make that all the more painful.

1. If BMW will issue a 1099c for the 2 amounts would this not stop the JDB/CA in their tracks? If not, why not?

Maybe. The 1099c is an IRS thing. I'm not aware of any court decisions that says this protects you from a JDB. Logically, it should, but...

2. How will a 1099c solution appear on a CR?

Probably no change to whatever you have now. It should be listed as a "charge off/write off" balance $0...a negative.

3. Should I DV?

Absolutely. Just because you might have owed money to BMW, doesn't mean these idiots have the right to collect it. I'm not sure if its a state law, but there are specific steps that should have been followed to notify you of the "defencies" involved with the sale of these cars. You need to check if all the I's were dotted and T's crossed.

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The 1099-C is an IRS mechanism. I am not sure if BMW will issue one even though they CO'd the debt, as they sold it and someone now is collecting. .

THe 1099 is to cover forgiven or compromised debts, neither of which BMW has done. BMW had to Charge it off.

If you settle with the JDB you'd be looking at a 1099. Talk to a CPA about this if you are worried about your taxes.

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I was at the Georgia State University Law Library the other night. I found it interesting that the universities continuing education booklet for Debt Collection for 2006 stated that there was no law that prohibited collection activities after a 1099 is issued.

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The 1099-C is an IRS mechanism. I am not sure if BMW will issue one even though they CO'd the debt, as they sold it and someone now is collecting. .

THe 1099 is to cover forgiven or compromised debts, neither of which BMW has done. BMW had to Charge it off.

If you settle with the JDB you'd be looking at a 1099. Talk to a CPA about this if you are worried about your taxes.

I have asked BMW USA for some help (wrote to their CEO and he called me back) I have searched high and low to determine if a 1099 will stop collections from a JDB/CA slimeball and simply can find nothing. The tax aspect does not concern me. I can easily make a payment arrangement with the IRS that I can live with but I want those slimeballs out of my life.

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For what its worth, the IRS just formalized its rules regarding "forgiven debt" and 1099c last year. There probably hasn't been time to have this pass through the courts. It you have the money to settle with the IRS...maybe you could afford a lawyer to fend off the JDBs. (Actually, I beleive their might have been a ruling in the 9th circuit. I'll see what I can find tommorrow.)

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For what its worth, the IRS just formalized its rules regarding "forgiven debt" and 1099c last year. There probably hasn't been time to have this pass through the courts. It you have the money to settle with the IRS...maybe you could afford a lawyer to fend off the JDBs. (Actually, I beleive their might have been a ruling in the 9th circuit. I'll see what I can find tommorrow.)

Thanks. I am just very nervous that an attorney could fend them off. The IRS would cost me 30% of the 1099 amount and they will easily allow a payment plan. 30% probably represents an unlikely settlement with a JDB/CA so if a 1099 works it looks attractive. If it won't stop the CA's then it would be lawyer time after CA's violate (I already determined that neither are bonded as is required in Texas so I figure they will screw up although the lack of a bond is not a direct violation).

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I was at the Georgia State University Law Library the other night. I found it interesting that the universities continuing education booklet for Debt Collection for 2006 stated that there was no law that prohibited collection activities after a 1099 is issued.

Could you provide further detail?

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BMW cannot issue a 1099 if they have already sold the debt to the JDB. With that sale, all rights and chattels transferred with it.

What I would be more interrested in is if BMW followed procedures as required under the UCC for handling of the repo. Specifically, if they sent you a disposition report for each car outlining what they sold the car for and who bought it. Also, in certain states, you have a right to recover the property even after the auction sale by paying the buyer the auction price, usually within 30 days.

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BMW cannot issue a 1099 if they have already sold the debt to the JDB. With that sale, all rights and chattels transferred with it.

Honestly, I'm not sure about that. I've been researching this for a couple days now, and I can't find any definitive laws or court cases.

What I've found so far is that the 1099 process is mandated by the IRS. Their main intent, it appears, is to see that if the OC claims a business deduction for the forgiven debt, then someone else pays taxes on it. In this case, I'm sure BMW would declare a loss for the difference between what was owed and what the JDB paid for it. The IRS is going to want taxes on that difference. So, lacking any evidence to the contrary, I'm still thinking that BMW can throw a 1099c...or, for that matter, the OP can file the appropriate form with the IRS saying "I had this income, but didn't get a 1099 for it". (I did find some references that pointed out that even if the OC didn't issue the 1099, the debtor was still responsible for telling the IRS about the "income").

On the other hand, I still can't find any court cases where it says that getting a 1099 protects you from action by a JDB.

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For that is worth...When I refied my house, I settled on a deliquent Equity line with Wells Fargo and they sent me a 1099C for the balance. After 30 days of issuing the 1099C they deleted the trade line from the CRAs even though before, they were showing it as "settled account with balance". The acount was 180 days past due. Maybe I got lucky on this one,

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Ah geesh...here's an interesting cite

http://www.justanswer.com/JA/ASP_A/T_602940/TR/conformance-irs-tax.htm

...it basically says that the 1099c is "informative" rather than "substantive"...meaning that even though the IRS is going to want you to pay tax on it, it DOES NOT cancel your obligation for the debt. I quess what that means then, is that you pay the taxes on the 1099c, until you settle up with the OC or JDB for the debt...they cancel it...and then you get to file an amended return with the IRS to get your taxes back.

I'll keep looking...

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Okay, I'm gonna hang this one up...but, here's my learned opinion for what its worth.

When an OC decides that an "identifiable event" as defined by the IRS occurs, the should issue a 1099c. This does not, in and of itself, cancel the debt...nor does it cancel your reponsibilty to repay it. Its only an "informative" form for the IRS. The OC doesn't actually get a tax deduction for this...its only an accounting function that reduces their income for that period.

When you receive the 1099c, you are reponsible for paying taxes on it...unless you can prove to the IRS's satisfaction that you were insolvent at the time. Even if you don't receive the 1099c, you are responsible for reporting this "cancelation of indebtedness" to the IRS, and paying taxes on it, unless you were insolvent. (Its not clear to me how you're supposed to know the you're supposed to do this if you don't get the 1099c).

Up until the point where the debt is actually "cancelled" by some act of the OC or JDB (other than just issuing the 1099c), it is still collectable.

Therefore, even if an OC issues you a 1099c, and you pay taxes on it, the OC can sell the debt to a JDB and the JDB can try to collect it from you.

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I did some research (thank you CIC) and determined that neither of the 2 CA's involved are bonded in Texas. This is not a violation of the Fed rules but should be useful at some point. Suggestions as to where and how I can use this info.

I plan on DV'ing both of them for starters and documenting everything. I would think that they must now be able to document that the OC followed all the rules of a repo in Texas as to documentation.

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Therefore, even if an OC issues you a 1099c, and you pay taxes on it, the OC can sell the debt to a JDB and the JDB can try to collect it from you.

But here's the rub. If an OC sells your debt for value to another party, the most they can issue a 1099 for is the amount they wrote off. So if you owed $500 and they sold it to a JDB for $300 the 1099 can only be for $200. The $300 portion was not a loss, nor was it forgiven or cancelled...The OC received payment for it.

If an OC issued a 1099 for the full value and then sold the debt for value to another, they are committing tax fraud by reporting a loss higher than actual.

There is also the question of whether or not they can sell it after issuing a 1099c, because a 1099c is a cancellation/forgiveness of debt. If it is reported as cancelled, how can they sell it for value? BTW, There is a time limit on amending a return. So if a JDB comes after you 5 years later over a debt you got a 1099c for, you're not going to be able to file an amended return.

I think I'll need to call my uncle at the IRS and see what he has to say about this subject.

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Yep, lots of things not clear as yet. I also found some other references that say the whole things is still being litigated. I guess the bottom line for us debtors is that the 1099 doesn't seem to protect us from further collections...

(I even found one cite that said the safest thing for an OC to do is issue the 1099c along with a note that says "...this is only to comply with IRS regulations and does not mean we're going to quit trying to collect...")

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I did some research (thank you CIC) and determined that neither of the 2 CA's involved are bonded in Texas. This is not a violation of the Fed rules but should be useful at some point. Suggestions as to where and how I can use this info.

I plan on DV'ing both of them for starters and documenting everything. I would think that they must now be able to document that the OC followed all the rules of a repo in Texas as to documentation.

Actually, if they are not bonded in the state they are collecting in, and the law requires it, they are violating the FDCPA as well. Everytime they send you a letter that says that they are going to continue collection efforts unless you pay, they are violating sec 1692e(5):

A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section:

<snip>

(5) The threat to take any action that cannot legally be taken or that is not intended to be taken.

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Actually, if they are not bonded in the state they are collecting in, and the law requires it, they are violating the FDCPA as well. Everytime they send you a letter that says that they are going to continue collection efforts unless you pay, they are violating sec 1692e(5):

I think I understand; 1. It is not an actionable violation that they are not bonded (that is a problem for the State of Texas) 2. the violation is collection efforts while not bonded.

I do not think I should disclose this to either firm until and if this reaches suit stage. Agree?

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I talked to my uncle at the IRS and he said that any OC that sells a debt after filing a 1099c with the IRS would be committing tax fraud because not only are they saying they gave you income, but because they are taking payment on something they recorded a loss with the IRS on their own corporate taxes. Even if they later record a gain, it is a different class of gain and the taxes paid on the gain would be less than the tax credit they got for the loss.

The IRS generally doesn't detect this fraud because the gain is listed as a miscellaneous gain (there is no reporting mechanism for recovered charged off debts) so they would not know it was tied to a previously reported capital loss.

Basically an OC doing this is not only causing the consumer harm, but is cheating the IRS out of 22% tax on the unrecovered difference.

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