dbinaz

Can't settle with CBNA if 1099-C issued?

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So I called Home Depot Credit, which is Citi-Bank. I wanted to propose a settlement. They said they cannot accept anything since they already sent me a 1099-C for 2010. I never got it cause I have moved a lot since then. They said on the phone they won't come after me for the debt but will not put that in writing. I have been with Lex Law for over a year now and that one plus CapOne will not budge.

I am looking to get a mortgage, but the broker was concerned with those 2 debts, that they might come after me for it. If not for those 2, I would qualify. Is there anything at all I can do at this point?

Thanks,

D

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They can still report on your credit. All they are saying is you are not legally required to pay them, not that you don't owe the money.

Same thing with a statute of limitations issue. They just can't force you to pay them via court, if that defense is raised, it does not mean you don't owe the money, it just means they can't collect from you.

The credit reports are used as leverage to get you to pay (I know obvious) and that can be even if you are under no legal obligation to pay. You want something off your report bad enough, they figure at some point you might pay them. A type of legal extortion.

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I believe that if a 1099 is issued, then they have cancelled the debt and you are no longer liable for it.

There's been a lot of discussion of this, and I honestly don't remeber the latest...but...what I think is: the 1099c does NOT cancel the debt. The OC can still collect it and, if you pay them and already paid your taxes on it, you get to fight with the IRS to get your money back. The OC can still sell the debt to a JDB...in which case the tax situation gets even messier.

Seems to me jq26 is the expert on this...

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As is true of anything to do with the IRS, it ain't that simple. Here's jq26's take on the matter:

So the reg is saying, "deem it discharged and notify us of income to the borrower, regardless of whether or not you are actually discharging the debt. Construing the act of deeming the debt discharged as an actual "forced" discharge makes the bolded portion of the regulation strangely out of place. The regulation sees them as two distinct acts. Additionally, the regulation uses the words "solely for the purposes of 6050P and this section, a discharge of indebtedness is deemed to have occurred...". In other words, again it drives home the point that the deeming of the debt as discharged is limited to tax purposes, nothing more.

In December 2009, The Arizona Appellate Ct. looked squarely on point at this issue in the Amtrust Bank case. The case was after Franklin and not only cited the case, but agreed with its holding (but came to an opposite conclusion).

So the holding in both cases is this: The 1099C is prima facie evidence that a debt has been discharged. But, this is a fact based decision, so at the trial court level, the court can make a determination based on the facts and circumstances whether the creditor canceled the debt merely for tax purposes (thereby allowing them to collect and have standing to sue) or if the creditor actually meant to cancel the debt. Note the court specifically notes that WHY the 1099 was issued is crucial in this fact based inquiry. If the 1099 was involuntarily forced to be issued by IRS "identifiable event triggers", then this favors a finding that the debt is still valid. If the 1099 was issued voluntarily by the creditor, then that favors a finding that the debt was indeed canceled.

In Amtrust, the appellate court allowed the facts of whether or not creditor bank issued a 1099C voluntarily or invountarily to be flushed out at trial, and denied both the debtor's MSJ and bank's MSJ. In Franklin, the trial court had already determined that the debt was extinguished (how they got to that decision is not really important), and the standard of review by the Franklin court was abuse of discretion bythe trial court. Using the same analysis that we see in Amtrust, the Franklin appellate court said that this is a fact based issue and that the fact finding performed bythe Franklin trial court did not exceed the abuse of discretion. So the debtor won. Although the decisions are quite close *(though Amtrust gets into tax law a bit more), we get two different results because the procedural posture was different in each case.

http://www.harperlawarizona.com/Amtr...%20Fossett.pdf

I hope this helps. By the way, this will have to be litigated state by state. You have Amtrust in Arizona, Franklin in Connecticut, and In re: Zilka in Pennsylvania (1099-C is not a discharge of debt in PA, but controlled by state law, so lawsuits are allowed up to applicable SOL). All these cases are state specific.

The full discussion is at: http://www.creditinfocenter.com/forums/there-lawyer-house/307610-what-year-did-1099-c-cancellation-debt-income-become-law-2.html

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