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Eiffel0925

1099C FORGIVEN DEBTu

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My husband has a debt of $2262 with Americredit Financial services for the balance that the gap insurance did not covered when he totalled his car.

We received a 1099C form in the mail today stating the below.  

 

Form is titled "Cancellation of Debt"

 

"You received this form bc 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 discharged 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's less than $600, on the "other income line" of your form 1040.  However, you may not have to include all of the canceled on your income.  There are exemptions and exclusions, such as bankruptcy and insolvency.  See  pub. 4681, available at IRS.gov for more details. "

 

My question is:  If the debt is being forgiven shouldn't they remove it from the credit report?  I called them today and they said that they don't have to remove it.  Also, they are constantly calling my husband to collect on the debt.  I'm kinda lost here.  Can somebody please give me a better explanation and guide me on how we should handle this.

Thanks so much.

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They don't have to remove it.  But they do need to show a balance of 0.  They can show a status of paid or forgiven.  They should stop collecting now.  If they are still collecting, send a C&D letter.  Here's the long version: "I dispute this debt.  I refuse to pay it.  Pound sand.  Cease all commuincations."

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They do not have to stop collecting once they send a 1099-C. They also do not have to remove the tradeline from the report. That is one of the things that the courts ruled on in 2006 when the issue of sending them was fought. However, if they did send one, I would pay the tax and tell them to go pound sand. If they do sue, lets see what a state court has to say about a 1099-C (as part of a multi-prong defense of course).

As for the tax itself, the actual tax will be between $226 and $896 depending on the bracket you are in and whether you have any deductions to offset this (with the most likely scenario having the tax between $226 and $566). Most likely, your refund will cover this meaning you get less of a refund but you do not owe the IRS.

Realize that this is one thing that is constantly changing right now and the rules get set up. Expect more changes in the future as the courts start to get a grasp of the issue.

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