Charge Offs, but with balances

[DrJim]

Helping some people with their reports - accounts are coded as charge-offs but have balances and past due amounts.Shouldn't they be zero balances and the customer receive a 1099 as imputed income?  

[Anonymous]

Charge off does not zero out the account balance. It just allows them to move it to the proper place on their books for accounting purposes. The balance goes to zero if they sell the debt. The 1099 is sent only if they decide to not persue the debt in any way, such as selling it or assigning it to collections.

[DrJim]

Great, thanks.  I've looked at dozens of these things for folks and it was always zeroed out.  I thought if they took the tax break they had to zero it out, but that may only be when they sell it to a CA.  Thanks for helping me understand this a little better.

[Anonymous]

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@DrJim wrote:

Great, thanks.  I've looked at dozens of these things for folks and it was always zeroed out.  I thought if they took the tax break they had to zero it out, but that may only be when they sell it to a CA.  Thanks for helping me understand this a little better.

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Thats because most of the time they get sold off. But some places use collection agencies to recover, rather than selling it outright - thats when it won't be zeroed out.

Basically, if they sell it they have to zero it out, and it then belongs to the collector - no 1099 involved. If they decide to not collecting anything at all, and take the tax deduction on it - then they send a 1099 and it gets zeroed out.