slavenomore

"We will no longer attempt to collect the unpaid debt on your account", - You will get 1099-c from us in the near future.

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"We will no longer attempt to collect the unpaid debt on your account", - You will get 1099-c from us in the near future. 

 

Got 3 letters from CC company about 3 accounts with them I stopped paying 2 years ago. 

 

1) What does it mean in real life?

 

2) Can they still sell the debt, sue me or go after me in any way? 

 

3) What can I do as the next right steps?    

 

thank you!  

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Now you can look forward to a 1099-C. Hope you were insovent the year you defaulted. That or BK will be only way past the 1099-C.

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And, yes, they can still sell the debt.  The OC is saying they're not going to try to collect anymore, so they will probably not sue.

 

Next steps?  Deal with your "found income" on your taxes...and wait to see if a JDB shows up.

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On a positive note you don't have to worry about fighting an OC in court. You are very lucky they have given up with so much time left to collect from you. 

 

Even if they sell the accounts you will have a much better chance at defeating a JDB. 

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I have posted my opinion on another topic but here goes again.

 

As many of us have discovered or surmissed, a major credit card issuer/bank has decided to cut their losses and charge off their unpaid accounts.  They were being investigated by the OCC and finally reached a settlement agreement during the last month or so.  
 
After charge off the bank is required to issue a 1099C that the IRS requires you to report on your tax return.  The charge off is considered income for tax purposes.  There are forms that can be filed along with your 1040's that can offset your tax liability on the reported amount.  The form is an IRS 982 (the instructions are included in Publication 4681).  You have to be insolvent at the end the reported year to offset the tax.  If not insolvent you are liable for both state and federal tax.  It is important to report this as it will be caught (usually within 18 months) and you will be also liable for penalties and interest on the tax.  
 
If the account was cancelled then it becomes a murky situation and only a court or IRS can decide if they are allowed to sell the debt to a JDB.  If it only shows as a charge off then YES! they can sell the debt to a collection agency (JDB).  It is no longer the banks responsibility and they usually will tell you to contact the JDB to make a settlement.  Beware of that route as dealing with JDBs is chancy and you will usually regret it.  If it goes into collection and the JDB files for judgement then depending upon your state's court procedures the case will be tried or placed in arbitration.  If you do not appear or ignore the summons a judgement will be awarded to the plaintiff (JDB) and you will now have a judgement placed on your credit report.  BE SURE NOT TO IGNORE THE SUMMONS!  Most states have websites where you track the docket and in the event the summons was served or claimed was served.  If a judgement is awarded in favor of the plaintiff they have various ways to collect, garnishment of wages, liens placed on autos or real estate, forced sale of autos or real estate,,,etc.  Said judgement is in force for a period of 10 years and can be renewed indefinitely.  The judgement can also be sold to another JDB if they decide to give up pursuing you.  The sale of judgement is called an 'Assignment of Judgement' and can follow you to your final resting place and beyond if the account was secured by a co-signer or property and renewed every 10 years.
 
There are ways to circumvent the judgement, one is to remain insolvent (NOT a viable situation if you don't want to own anything ever again or never have a dime in the bank and your CR is not an issue), you can declare Chap 7 bankruptcy but there are qualifications that must be met (works if you're unemployed and at the end of your rope).  Chap 13 bankruptcy, the plaintiff wins, but you may be able to get a workable repayment plan.  Chap 7 wipes out the judgement but remains on your credit report for 10 years.  Your credit will start improving usually in 2 years (maybe not for a mortgage), if you have kept you credit nose clean and paid your obligations on time, haven't accumulated too much debt and your employment situation has improved.  If you chose the first remember that having a judgement also affects your ability to get credit, buy an auto, get insurance or apply for a mortgage or a rental.  You can also be 'collection proof' that usually pertains to someone who is on SSI, SS or other forms of assistance with no forseeable change to their situation.

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@CreditVortex ...Not quite true.  A creditor is NOT required to issue a 1099c at charge off.  CO only means "charge against income for P&L purposes", which could mean that all they done is backed the any interest and penalty out of accrued income.  The creditor may elect to continue to attempt to collect the debt after CO. 

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@CreditVortex ...Not quite true.  A creditor is NOT required to issue a 1099c at charge off.  CO only means "charge against income for P&L purposes", which could mean that all they done is backed the any interest and penalty out of accrued income.  The creditor may elect to continue to attempt to collect the debt after CO. 

True but I was responding to the original posters question.  Our letters from the bank indicated that they were NOT going to continue efforts to collect this debt.  I took it at face value that they had given up or decided that the account wasn't worth the time or effort for them to continue collection processes on their end.   I never doubted that they have the right to sell it to a JDB.

 

I'm not sure if you are correct about the responsibility of the OC and their requirement to send a 1099C.  As I understand it they have to file a 1099C so there is a paper trail for charge offs of $600 or more on a given account, otherwise there would be no checks and balances to offset the deduction for the charge off.  Also there would be no document or record for the IRS to apply the income to your return.  

 

If you call the IRS with a related question they will give you several different answers depending upon whom your talk to.

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The problem is...charge off does not mean write off.  Charge off only moves it from one line to another on the P&L.

 

You are correct that IN THIS CASE the creditor does imply that they are writing off the debt and will therefore adjust their tax liabilities accordingly...but, according to the IRS rules on when a 1099c could be issued, they could wait up to 3 years after an "identifiable event".

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In addition to the above he said she said contest I pulled up an online copy of a 1099C that is filed with the IRS and clearly on the upper right hand side of the form is the words, 'Cancellation of Debt'  it is in bold lettering and appears to be the title of the document.  That being said I had further researched about the ability of an OC to sell the debt once it had been cancelled.  According to NOLO.COM and other sites claiming legal knowledge that once a debt has been cancelled and the OC has issued a 1099C that the debt is no longer collectible.  

 

I AM NOT A LAWYER AND MY ADVICE IS QUESTIONABLE AT BEST.    

 

I do not know and it appears that no one can come up with a clear answer to the issue, one I read said (it was a lawyer's blog) that he knows of not one single case that the OC won in court when they had cancelled the debt and they continued collection or sold the debt.  

 

Any thoughts? 

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ok, so if i understand you correctly. 


 


1) it cannot be both charged off by the OC and sold.   and since they are filing a 1099, they have charged it off,


 and can no longer come after me, or sue me or sell it,  even if it is not SOL


 it can be either "canceled" or "due".  It can only be one or the other.


    Correct?   I am in IL 


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There have been may people that both the OC and the JDB have come after, after they had sent a 1099-C. We hear about it all the time. 1099-C sent and and the next thing these people knew was a JDB had bought the debt, and or the OC decided to still continue. This has been fought in the courts for awhile and things are still not decided one way or the other. Just becareful.

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found this too:

 

Perhaps a better question to ask is whether the newly redesigned 1099-C, which requires the reporter to include a code for the event, will improve things. If the 1099-C explicitly says code G (policy decision), then the debtor may well have a case that the debt has not been truly canceled. I don’t know whether there have been any rulings on this situation in the past.

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For those of you dealing with Chase the question may be irrelevant.  They stopped selling debt last year because of "documentation" issues. They may have started selling again, but if you fall into a certain two-three year time frame then you should be in the clear. 

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  1. HEY art Thanks!  

     

    also found this

     

     My "plain" reading of the event codes documented in the 2014 IRS 1099-C instructions, would leave me to believe that only code "H" would indicate that the debt may not have been discharged. Any other code is a discharge (cancellation/forgiveness) of the debt, according to those instruction

     

    I am not an attorney. Any advice provided is not legal advice
     
    clear.gifReply   clear.gifReply With Quote   multiquote_40b.png Blog this       
  2. Yesterday, 11:47 PM#10
    Registered UserB/F Newbie Join Date Jul 2012 State: Illinois  Posts 111
     

     

    What can LEGALLY be reported probably depends on the CODE for field Box 6 on the 1099, the “Identifiable Event Code:”

    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

    I Other actual discharge before identifiable event

    A client just received a 1099 from Chase with code G:

    “G Decision or policy to discontinue collection”

    However, Chase still reports the full amount on the credit reports (along with totally bogus RECENT 120+ late payments) and we disputed. I argue that credit reporting IS an attempt to collect as the past due balance lowers your credit rating and it likely has to be PAID to get a mortgage.

    However, Code H clearly means that they can continue to collect.

    “H Expiration of nonpayment testing period”

    The creditor merely complied with the IRS rule.

    Summary

    1099s for canceled debts are a very complex subject and may result in consumer claims against creditors due to incorrect amounts, codes and credit reporting.

    MANY consumers will NOT be liable for any tax as they are INSOLVENT.

    Complete the IRS worksheet to determine whether you are insolvent: IRS-Insolvency-p4681-opt.pdf

    If you previously paid tax on a forgiven debt while you were insolvent, keep in mind that you may be able to AMEND your tax returns.

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Can you give me the nolo link and the lawyers blog link?  

 

I want a rock solid answer on this before I celebrate or plan the next strategy.  Thx. 

I can't find the link to the lawyers blog, I spend entirely too much time surfing the web and never bookmark.  Sorry, but here is a related link from Forbes.com

 

http://www.forbes.com/sites/peterjreilly/2013/05/20/bank-cannot-issue-1099-c-and-subsequently-try-to-collect/

 

It points out how confusing the issue is with both the courts and IRS.  

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If a CA tries to issue you a 1099-C, you can try fighting it in court - 

 

1.  You don't know how much they paid for this debt

2. They probably have any good documentation on the debt.  

 

Some people have had good success complaining to your state attorney general.  

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That bastion of all things Tax Related...TurboTax...offers the following comments...I paraphrase...

 

If the debt was NOT truly canceled (i.e., the creditor only issued the 1099c because the IRS said they had to), you don't have to claim the income.

 

And, canceled debt is EXCLUDED from income if the debt was canceled DURING insolvency.

 

That clears it all up, doesn't it?

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lol  clear as mud! 

 

but  doesn't this clear it up ?   

 

If you have code A-G on your 1099-C  it was cancelled. 

 

If you have code H, it was not? 

 

Am I missing something?

 

What can LEGALLY be reported probably depends on the CODE for field Box 6 on the 1099, the “Identifiable Event Code:”

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
I Other actual discharge before identifiable event

A client just received a 1099 from Chase with code G:

“G Decision or policy to discontinue collection”

However, Chase still reports the full amount on the credit reports (along with totally bogus RECENT 120+ late payments) and we disputed. I argue that credit reporting IS an attempt to collect as the past due balance lowers your credit rating and it likely has to be PAID to get a mortgage.

However, Code H clearly means that they can continue to collect.

“H Expiration of nonpayment testing period”

The creditor merely complied with the IRS rule.

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My first 1099 C code G came today.  Hopefully I can save $12.22 (unless CMRRR's have gone up) - 2 X $6.11 (1 for DV, 1 for C&E/FOAD).    Time will only tell.

 

"Like sands through the hour glass so are the days of our lives".

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Taking into account what information I can, I have arrived at some degree of understanding of the issue of 1099C's and the reporting requirements with the IRS.  These instructions pertain to my situation - 1099C cancelled in Aug 2013 with a code G.  I fill out my own forms rather than use any software.  My situation is pretty simple, fixed income, standard deductions, no investments and very limited assets.

 

1. You will need to file a 1040 rather than a 1040A.  No where to show the 1099C as income on 1040A

2. My 1099C shows a cancellation date of Aug 2013 with a code G

3. I have maintained an ongoing personal balance sheet showing net worth for many years. Helps with worksheet below

4. You need to use the insolvency worksheet included in your 4681 Publication - it can be downloaded from the IRS http://www.irs.gov/Forms-&-Pubs

5. You will need to download IRS form 982 from the same link in item 4

6. The cancelled amount indicated on your 1099C Box 2 enter on line 21 of your 1040 enter 'Cancellaton of Debt' for 'type' 

7. Check box 1b on form 982 (pay no attention to the 'not in a title 11 case') enter the amount from 1099C Box 2 on line 2 of your 982. You need to file a 982 for each 1099C but only enter the total from all on Line 21 1040.  IRS needs seperate 982's to match up the totals from their copies of the 1099Cs

8. Attach all 982's to your 2013 federal tax return

9. Keep the worksheet from Publication 4681 - if you are audited your will need documentation of how your arrived at insolvency

10. Keep the copies and the original 1099C, you don't need to attach the 1099C to your return just have it on hand

 

For states with no income tax there is no issue.

For states with income tax - this is a grey area right now for me.  I don't have the answer, but in my case the my state requires that I sent a complete copy of my federal return when I file my state.  I figure that if the federal adjusts my return as expected then the state will also lower the adjusted gross income.  I usually have a small refund so it may take me a few weeks/months to get it ironed out.  

 

I posted this in hopes that it could help some, each situation is different  

 

DISCLAIMER - I am neither a lawyer or tax expert, please check with your accountant/CPA/financial guru

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FWIW...I think you have got the right take on this.  Code G means they've decided to stop THEIR collection efforts as of Aug 2013.  Code G is taxable income, but, it sounds like you'll be claiming insolvency in 2013...therefore, you do not have to pay taxes on this.

 

Let me reiterate two things: 

 

1). this does not mean the debt goes away.  They can still sell it (in fact, they could probably change their mind and start collecting all over again).

 

2). IMO, in order to qualify for insolvency, you would need to qualify for a BK 7, but without any exemptions.  For example, your assets would include monies in your 401k.

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2). IMO, in order to qualify for insolvency, you would need to qualify for a BK 7, but without any exemptions.  For example, your assets would include monies in your 401k.

In order to qualify as insolvent all you need is for your debts to be more than your assets. This can include other defaulted accounts if they are still being reported. 

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