piotrek04

1099-C Cancellation of Debt and Judgment

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In 2007 I have received a default judgment for my Bank of America Credit card.  This judgment is still scheduled to show on my credit report until 2014.

 

Today, in mail I have received 1099-C from Bank America for the cancellation of debt in the amount and dated of 12/31/2012.

 

Does it mean, I am no longer liable for this debt and I can vacate judgment and dismiss case?

 

Thanks, Piotr

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What is really going on here?

How can you have a judgment and forgiven debt at the same time?

On the one hand, if you have a judgment against you ....... there would be no forgiven debt.

On the other hand, if you have forgiven debt, it would indicate a settlement of some type or did they forgive the whole judgment?

What am I missing here?

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Really it dosen't sound good no matter how you look at it. Did you just recieved the 1099c or you did a settlement or something?

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Actually (although the rules are confusing), I beleive if they have a judgement, but haven't tried to ollect on it in 3 yrs, that fits one of the triggers for issuing a 1099c.

 

The 1099c doesn't exactly mean the debt is forgiven...it really means they've decided they're not going to try to collect it.  So, bingo...yo've got found income.  (Which they may at some point in the future try to collect, and if they suceed, then you can try to get your taxes back from the IRS).

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So basically if you got a debt with an OC call them every 2 years so not to get a 1099c, and if you get one from a JDB dispute it. What form is to dispute a 1099c?

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Guess we'll have to await further info from the OP.

Thanks for your input, willing.

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I don't have the form number before me, but you can look here on the IRS feedback page:

 

Form 1099-C, Cancellation of Debt

File Form 1099-C, Cancellation of Debt, for each debtor for whom you canceled $600 or more of a debt owed to you if:

  1. You are an applicable financial entity (see Who Must File in the instructions) and
  2. An identifiable event has occurred.

If you cancel a debt before an identifiable event occurs, you may choose to file this form for the year of cancellation.

Coordination With Form 1099-A.

If, in the same calendar year, you cancel a debt of $600 or more in connection with a foreclosure or abandonment of secured property, it is not necessary to file both Form 1099-A, Acquisition or Abandonment of Secured Property, and Form 1099-C for the same debtor. You may file Form 1099-C only.

Current Products

(
)

(Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G)

Other Items You May Find Useful:

, Corporations

, Sales and Other Dispositions of Assets

, Acquisition or Abandonment of Secured Property

, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals)

.

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Another one from Credit.Com:

 

“What the IRS tells you to do is to call the bank to get it corrected but if you’ve ever talked to the bank, you know how far that’s going to go,” says Edward Zoller, a CPA and partner with the tax practice of Thomas, Zollars and Lynch in Arizona. “It’s kind of a mess,” he warns.

Cancelled Debt Isn’t Always Cancelled

I’ve written a series of articles about 1099-Cs and 1099-As, but to recap, these forms are used by lenders report cancellation of debt (COD) income to the IRS. The IRS generally considers cancelled debt to be income and it’s up to taxpayers who receive these forms to either include that amount in their income when filling out their tax returns, or demonstrate to the IRS why the amount should be partially or completely excluded.

[Featured Products: Compare credit score, report, and monitoring plans at Credit.com]

The term “cancelled debtin itself may be misleading. While these forms are sent to consumers who have negotiated settlements on debts for less than the full balance, or who have negotiated short sales on their homes, the IRS also requires that lenders notify them when there has been no significant collection activity on a debt for 36 months. The creditor may still decide to try to collect the debt at a later date, even though a 1099-C has been sent.

 

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This last part, underlined is what I said earlier, even though you receive a 1099-C. The collector MAY still come after you.......be aware.

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Now another revised 1099-C came in by mail.

 

Original states:

Box# 1 Date of event:  12/31/12

Box#2 Amount Discharged:  $5,516.65

Box#3 Nothing

Box#4 Debt Description:  Uncollected Debt

Box#5 Borrower was personally liable for repayment of debt (name)

 

--------------------------------------------------------------------------------------------------------------------------

New Corrected 1099-C is dated 1/14/2013

 

Box# 1 Date of event:  12/31/12

Box#2 Amount Discharged:  $0.00

Box#3 Nothing

Box#4 Debt Description:  Uncollected Debt

Box#5 Borrower was not personally liable for repayment of debt (name)

 

Total amount of debt discharged:  $.00

 

 

Can anyone explain what does the second corrected 1099-C mean and what should I do next?

P.

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I have absolutely no idea.  Maybe they checked your CRs and decided you have something they can take to satisfy the judgement.  Maybe they sold it.  Maybe that checked their computer files and no longer have the appropriate records to prove it was yours.

 

Maybe its a good thing for you...maybe its not.  Don't know.

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i'd suggest you call the Irs and ask.  Be sure to document who you talk to, their employee number, and exactly what they said (the IRS phone jerks are as confused as the rest of us). The, act on their advice.  If you get audited, you can use the "this is what I was told" defense.

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It almost seems to me that this is a new collection strategy to get an admission of debt. I have received 3 of these 1099c this week. They are from creditors with known inability to collect in court. 1 that I received was from an account that was dismissed by plaintiff in court (they have no signed application or agreement).

 

Secondly, if these alleged debts contain late fees and hiked interest rate, unless there is a singed agreement, are normally excluded by the court in my State as excessive. At least in court you would be able to challenge these items and make the Plaintiff prove they are viable.

 

Certainly, there is a mechanism within the tax code to challenge a 1099c? If not, I will begin to issue 1099c on each of these collectors for debt written off and take the bad debt write off on my 1040. To my knowledge, anyone can issue a 1099. If I have a contractor do repair work on the plumbing in one of my investment properties that amounts to over $600, i must issue a 1099.

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http://blog.credit.com/2011/03/1099-a-in-the-mail-how-to-avoid-taxes-on-cancelled-debt/

click on the blue 1099-a or blue 1099-c

Instructions for Debtor

You received this form because a Federal Government agency or an applicable financial entity (a lender) has discharged (canceled or forgiven) a debt you owed, or because an identifiable event has occurred that either is or is deemed to be a discharge of a debt of $600 or more. If a creditor has discharged a debt you owed, you are required to include the discharged amount in your income, even if it is less than $600, on the "Other income" line of your Form 1040. However, you may not have to include all of the canceled debt in your income. There are exceptions and exclusions, such as bankruptcy and insolvency. See Pub. 4681, available at IRS.gov, for more details. If an identifiable event has occurred but the debt has not actually been discharged, then include any discharged debt in your income in the year that it is actually discharged, unless an exception or exclusion applies to you in that year.

Account number.

 

May show an account or other unique number the creditor assigned to distinguish your account.

Box 1.

 

Shows the date the earliest identifiable event occurred or, at the creditor's discretion, the date of an actual discharge that occurred before an identifiable event. See the code in box 6.

Box 2.

 

Shows the amount of debt either actually or deemed discharged. Note. If you do not agree with the amount, contact your creditor.

Box 3.

 

Shows interest if included in the debt reported in box 2. See Pub. 4681 to see if you must include the interest in gross income.

Box 4.

 

Shows a description of the debt. If box 7 is completed, box 4 also shows a description of the property.

Box 5.

 

Shows whether you were personally liable for repayment of the debt when the debt was created or, if modified, at the time of the last modification. See Pub. 4681 for reporting instructions.

Box 6.

 

May show the reason your creditor has filed this form. The codes in this box are described in more detail in Pub. 4681. A—Bankruptcy; B—Other judicial debt relief; C—Statute of limitations or expiration of deficiency period; D—Foreclosure election; E—Debt relief from probate or similar proceeding; F—By agreement; G—Decision or policy to discontinue collection; H—Expiration of nonpayment testing period; or I—Other actual discharge before identifiable event.

Box 7.

 

If, in the same calendar year, a foreclosure or abandonment of property occurred in connection with the cancellation of the debt, the fair market value (FMV) of the property will be shown, or you will receive a separate Form 1099-A. Generally, the gross foreclosure bid price is considered to be the FMV. For an abandonment or voluntary conveyance in lieu of foreclosure, the FMV is generally the appraised value of the property. You may have income or loss because of the acquisition or abandonment. See Pub. 4681 for information about foreclosures and abandonments. If the property was your main home, see Pub. 523 to figure any taxable gain or ordinary income.

Future developments.

 

For the latest information about developments related to Form 1099-C and its instructions, such as legislation enacted after they were published, go to www.irs.gov/form1099c

 

Fixing the problem

The worst thing you can do when you receive a 1099-C is ignore it. When your lender sends you the form, it also sends a copy to the IRS, which will match the document with information on your tax return.

Contact the lender if you believe the information on the tax form is incorrect. If your lender won't revise the form, report the amount on the 1099-C on your tax return and make an adjustment to correct the error. Most tax software programs provide a way to explain the discrepancy.

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IRS form 982 Reduction of Tax Attributes Due to Discharge of Indebtedness

 

In part 1 you will check box b for insolvency. If you can prove you are insolvent. Insolvency is the inability of a debtor to pay their debt. unable to satisfy creditors or discharge liabilities, either because liabilities exceed assets or because of inability to pay debts as they mature. You have to be able to prove this

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Get IRS Pub 4681.  It explains how to fill out the Form 982.  It ain't simple...

They don't want it to be simple, nor do they want us to be able to understand it.

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Can I use 1099-C to vacate default judgment or satisfy? Debt cancelled, but judgment still open.

 

This is an area that doesn't get the attention it deserves. Yes, the 1099-C cancels the debt, making it uncollectible.

 

I would even go out on a limb and suggest that it could be argued that because a judgment was obtained in connection with the collection of a debt, failure to issue a satisfaction of judgment upon issuance of a 1099-c could be a violation of 1692e. The case law is pretty clear that a 1099-c is an absolute defense to a collection suit.

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Could you post the applicable case law?  Some posts, here and on other forums, claim it is not well-established that a 1099-C really is a defense against debt collection.

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