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Credit Repair ramifications of 1099-C "We will no longer attempt to collect the unpaid debt on your account"


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There's growing chatter here as of late about the flurry of 1099-c forms going out to (former) debtors. Before the threads go in a hundred different directions, I was hoping we could wrangle all the questions and answers into one thread or perhaps one of the board gurus can slap together a Master Thread. I ask this not only in the spirit of altruism (so that future generations can find a central repository for our knowledge and not go nuts as we all did in the past looking in 100 places for one answer to one question), but also for personal reasons...

 

The gurus here helped me fix up my wife's and my credit years back (thanks again) so I moved on to helping the family. My brother's repair has been a thorn in my side for YEARS. It went well at first and I took care of everything EXCEPT two chargeoffs...I've been stuck on them for YEARS. I've tried everything (except paying, LOL) without any movement.

 

Today, however...he got two of those 1099-c forms stating "We will no longer attempt to collect the unpaid debt on your account"--one from Chase and one from Citi. This, obviously, is something new and I want to figure out how to leverage it in my favor with regard to credit repair. In other words, any movement on the part of the creditor is good news--it's just a matter of figuring how to work it into a deletion.

So...If I'm reading the other threads correctly (and please correct me if I am wrong):
1) The amount on the 1099-c must be factored into his income and taxes paid on it. In other words, if chase is 2k and citi is 1k, he's going to owe tax on 3k. Assuming federal tax to be around 30% for his current bracket, that would be about $900 which is great news as paying that would be a lot less than $3,000.
2) Furthermore, if he can prove he was insolvent at the time (he was), he will pay nothing
3) Any "Identifiable event code" other than "H" (his was "G") means that the debt was written off and not sold off. In other words, no CAs will be harrassing him (?).
I don't know if that's all correct, I'm culling it from other answers in other threads. If not, please let me know. Anyway, this brings us to the big question vis-a-vis credit repair (this is the purpose of the Web site, after all):
ARE THERE ANY NEW SUGGESTED STRATEGIES FOR REMOVING THE CHARGE-OFFS ASSOCIATED WITH THESE ACCOUNTS NOW THAT THE LENDERS HAVE OFFICIALLY WASHED THEIR HANDS (1099'D) OF THESE DEBTS?
I see the angle here for the lenders--the banks are probably getting more of a net addition to their balance sheets by writing it off as bad debt since, in this day and age, collection agencies are bidding less and less for debt (especially small debt) and with any luck they will soon go the way of the dodo. In other words, the banks are doing it with the bottom line in mind, not to help people (even if they do so in a roundabout way).
Anyway, the banks are minimizing loss on the debt and they are happy, does that mean (I'm assuming/hoping so) that they now could care less whether or not there is a CO on Joe Schmoes CR? In other words, will a deletion through a dispute--or, perhaps a Goodwill letter--be easier now?
Any answers from experience, gut feelings, crystal ball-readings or jut plain educated guessing will be great for the discussion.
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There's growing chatter here as of late about the flurry of 1099-c forms going out to (former) debtors. Before the threads go in a hundred different directions, I was hoping we could wrangle all the questions and answers into one thread or perhaps one of the board gurus can slap together a Master Thread. I ask this not only in the spirit of altruism (so that future generations can find a central repository for our knowledge and not go nuts as we all did in the past looking in 100 places for one answer to one question), but also for personal reasons...

 

The gurus here helped me fix up my wife's and my credit years back (thanks again) so I moved on to helping the family. My brother's repair has been a thorn in my side for YEARS. It went well at first and I took care of everything EXCEPT two chargeoffs...I've been stuck on them for YEARS. I've tried everything (except paying, LOL) without any movement.

 

Today, however...he got two of those 1099-c forms stating "We will no longer attempt to collect the unpaid debt on your account"--one from Chase and one from Citi. This, obviously, is something new and I want to figure out how to leverage it in my favor with regard to credit repair. In other words, any movement on the part of the creditor is good news--it's just a matter of figuring how to work it into a deletion.

So...If I'm reading the other threads correctly (and please correct me if I am wrong):
1) The amount on the 1099-c must be factored into his income and taxes paid on it. In other words, if chase is 2k and citi is 1k, he's going to owe tax on 3k. Assuming federal tax to be around 30% for his current bracket, that would be about $900 which is great news as paying that would be a lot less than $3,000. YES
2) Furthermore, if he can prove he was insolvent at the time (he was), he will pay nothing Insolvency clause is at the time one received the 1099 not when the debt went to CO.
3) Any "Identifiable event code" other than "H" (his was "G") means that the debt was written off and not sold off. In other words, no CAs will be harrassing him (?). IMO YES
I don't know if that's all correct, I'm culling it from other answers in other threads. If not, please let me know. Anyway, this brings us to the big question vis-a-vis credit repair (this is the purpose of the Web site, after all):
ARE THERE ANY NEW SUGGESTED STRATEGIES FOR REMOVING THE CHARGE-OFFS ASSOCIATED WITH THESE ACCOUNTS NOW THAT THE LENDERS HAVE OFFICIALLY WASHED THEIR HANDS (1099'D) OF THESE DEBTS?
I see the angle here for the lenders--the banks are probably getting more of a net addition to their balance sheets by writing it off as bad debt since, in this day and age, collection agencies are bidding less and less for debt (especially small debt) and with any luck they will soon go the way of the dodo. In other words, the banks are doing it with the bottom line in mind, not to help people (even if they do so in a roundabout way).
Anyway, the banks are minimizing loss on the debt and they are happy, does that mean (I'm assuming/hoping so) that they now could care less whether or not there is a CO on Joe Schmoes CR? In other words, will a deletion through a dispute--or, perhaps a Goodwill letter--be easier now?
Any answers from experience, gut feelings, crystal ball-readings or jut plain educated guessing will be great for the discussion.

 

 

Personally I do not know of any other special methods to use after a 1099c is issued. I would think once the DC is issued the balance due would have to be reported as 0 if not this could be a point of contention.

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A few things:

 

1. A charge off is an accounting term and doesn't have any affect on the balance.

2. No longer collecting on a debt doesn't affect a balance. This is different from forgiving a debt which does require the balance to be zeroed. Both trigger 1099-Cs.

3. Issuing a 1099-C has no positive impact on a bank's balance sheet. It's a small paperwork cost they would prefer not to do if the IRS would let them.

4, In general people that get 1099-Cs will no longer have the debt collected on but it's a fuzzy area. 1099-Cs are governed by federal IRS regs. and debt collectability, SOLs, and such are state laws that have differing time frames.

 

A bit of background on why 1099-Cs exist. They are to prevent a tax dodge that some folks had engaged in at one time where they would each lend the other money, then they would both declare the loans bad and take a tax loss while each would keep the "loan" proceeds. This resulted in creating the "imputed income" rule for canceled debt and 1099-Cs are required as a way of tracking it.

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Interesting letter from last year by the American Banker's Association taking issue with the 36 month testing period and it's ambiguity. Interestingly, the current IRS regs now state 36 months without having received a payment. This is even worse for peeps getting 1099-Cs because the IRS does consider this to be effective income while stating that it may not actually constitude debt cancelation. Yikes.

 

http://www.aba.com/Advocacy/commentletters/Documents/1099-CNotice2012-65.pdf

 

Interesting discussion with some apparently knowledgeable folks on this subject.

 

http://www.creditinfocenter.com/community/topic/301713-cancellation-of-debt-income-101-1099-cs/

 

Current IRS 1099-C Instructions

http://www.irs.gov/pub/irs-pdf/f1099c.pdf

 

Current IRS detailed guidelines

http://www.irs.gov/publications/p4681/ch01.html

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The IRS has modified older versions and the current one reads"

 

Codes A through G and I identify specific occurrences resulting from an actual discharge of indebtedness. However, Code H, Expiration of nonpayment testing period, does not necessarily identify an actual discharge of indebtedness.

.....

Code H — Expiration of nonpayment testing period. Code H is used to indicate that the creditor has not received a payment on the debt during a testing period ending on December 31, 2013. The testing period is a 36-month period increased by the number of months the creditor was prevented from engaging in collection activity by a stay in bankruptcy or similar bar under state or local law. This identifiable event applies only for a creditor that is a financial institution or credit union (and certain of their subsidiaries), the Federal Deposit Insurance Corporation (FDIC), Resolution Trust Corporation (RTC), National Credit Union Administration (NCUA), and other Federal executive agencies.

 

Good news/bad news. This means JDB's can't issue a 1099-C based on this event though other events may apply if a 1099-C has not been previously issued on the debt.

 

The bad news is that it no longer has ambiguities that the CA lawyer argues. It's still unfair as hell but the IRS has now identified events and gotten rid of the "good faith" exceptions. Also, the IRS states that this particular "event" may not constitute debt discharge which makes sense because it would otherwise have the effect of creating a universal 3 year SOL for bank OCs.

 

EtoA:

I suspect this new, make no payments in 36 months to an OC and get a 1099-C will be revised again. If a debtor makes a payment in most jurisdictions the SOL will be reset. If this isn't revised I think we will see OC's either selling the debt or filing suit before 36 months. What a mess.

Edited by cashnocredit
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I love the idea of collecting this all in one thread! Thank you, OP!

 

As I commented in another thread, I'm researching this because I received a 1099-C last Friday from Capital One. As far as I could remember, I hadn't had a Capital One card since 1996. Well, after calling them, it appears that I had the card in 1996, it was charged off in 2001 but then they decided to give me the opportunity to build credit with them again by opening a second card that contained the balance from the first card. Presumably, when that was paid off, I would have a card equal, at least, to that balance. Anyway, that card was opened in 2003 and charged off in 2005 and they are just now sending me a 1099-C for it. Nevermind that I don't recall receiving any letters whatsoever regarding the debt. I understand all of the reasons for receiving the 1099-C and what the exceptions are but I can't believe that they can legally attach this to my income long after they are able to put it on my credit report or sue me for it. Seems to me the "identifiable event" would have occurred in 2005.

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I love the idea of collecting this all in one thread! Thank you, OP!

 

As I commented in another thread, I'm researching this because I received a 1099-C last Friday from Capital One. As far as I could remember, I hadn't had a Capital One card since 1996. Well, after calling them, it appears that I had the card in 1996, it was charged off in 2001 but then they decided to give me the opportunity to build credit with them again by opening a second card that contained the balance from the first card. Presumably, when that was paid off, I would have a card equal, at least, to that balance. Anyway, that card was opened in 2003 and charged off in 2005 and they are just now sending me a 1099-C for it. Nevermind that I don't recall receiving any letters whatsoever regarding the debt. I understand all of the reasons for receiving the 1099-C and what the exceptions are but I can't believe that they can legally attach this to my income long after they are able to put it on my credit report or sue me for it. Seems to me the "identifiable event" would have occurred in 2005.

The IRS changed their rule to be more clearly defined and companies, who hate filing 1099-Cs, are being forced to comply. It could be worse. In the past they had a bit of wiggle room. The really bad thing about this is it is going to either create a wave of people that are being taxed on debts they will later be sued on, OC creditors will be forced to sell a debt prior to the 36 month period, or it will establish a de facto 36 month SOL. Time will tell.

Edited by cashnocredit
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Does anyone know what to do if you receive the same 1099-c two years in a row? The collection agency is Asset Acceptance and we included it with our taxes last year. Now we have the same form again, same amount, same creditor. I'm annoyed.

 

Include a copy of the prior 1099-C in your return and point out it is in error and that it is the same as last year's. Don't include the new one in your income.

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