topic Re: 1099-C? Anyone else have this issue with paid debt? in Rebuilding Your Credit

1099-C? Anyone else have this issue with paid debt?

jcstarkey8826 — Fri, 01 Feb 2013 15:17:45 GMT

I received a 1099-C for a student loan that I paid a CA for. I found an article online that made me believe they had to own the debt, or that me paying settling the debt would suffice not having to claim this as income. It was paid with a debt collector. Here is what I read as the reason for getting one:

1.) You have a debt that was never paid, or partially paid, sold to a collection agency who still couldn't collect, etc. Whatever--point is, whoever owns the debt is writing it off as a loss. This is not very common because unless you file for bankruptcy, most collection agencies or banks won't simply "give up" on you. If anything, they'll file for a judgment against you for the debt, interest, collection costs, capitalization fees, etc. It is very unlikely that you're receiving a 1099-C simply because the bank said "ah, lets write this one off." With the problems lenders are having these days, no bank is going to surrender debt as a loss.

Anyone have experience with this?

Re: 1099-C? Anyone else have this issue with paid debt?

Shogun — Fri, 01 Feb 2013 17:52:46 GMT

Did you PIF the CA? If so, there would be no reason for a 1099-c. The debt has been paid, it doesn't matter if it was paid to the OC or the CA, it matter's that it was paid.

Re: 1099-C? Anyone else have this issue with paid debt?

jcstarkey8826 — Fri, 01 Feb 2013 17:54:29 GMT

@Shogun wrote:
Did you PIF the CA? If so, there would be no reason for a 1099-c. The debt has been paid, it doesn't matter if it was paid to the OC or the CA, it matter's that it was paid.

I settled for half, but the amount is the full amount listed. I talked to the lady doing my taxes and she said she can get rid of it for me and that I wont have to pay that. I just hope she is doing it the right way not to mess me up. Im getting a second opinion to make sure.

Re: 1099-C? Anyone else have this issue with paid debt?

Anonymous — Fri, 01 Feb 2013 17:58:55 GMT

Any time you settle a debt, without it saying the debt was considered paid in full, they can come after you for the rest.

If the 1099-C is for that amount, then, yes, it is possible. If it for the entire amount they can't do that.

A CA can give a 1099-C but they do need to own the debt.

Re: 1099-C? Anyone else have this issue with paid debt?

jcstarkey8826 — Fri, 01 Feb 2013 18:02:36 GMT

@Anonymous wrote:
Any time you settle a debt, without it saying the debt was considered paid in full, they can come after you for the rest.

If the 1099-C is for that amount, then, yes, it is possible. If it for the entire amount they can't do that.

A CA can give a 1099-C but they do need to own the debt.

thats the weird part. the debt was sold to a CA (for sure sold, could not pay OC, I tried) but the 1099-c was from the OC and the original amount.

Re: 1099-C? Anyone else have this issue with paid debt?

Anonymous — Fri, 01 Feb 2013 18:11:20 GMT

They can't do that. If they sold the debt to the CA, they can no longer attempt to collect on it. Or issue a 1099-C.

Sometimes an OC will not let you pay them when they have only assigned the debt to the CA. You need to find out for sure.

If that is the case the CA should have let the OC know it was paid.

Re: 1099-C? Anyone else have this issue with paid debt?

jcstarkey8826 — Fri, 01 Feb 2013 18:17:51 GMT

@Anonymous wrote:
They can't do that. If they sold the debt to the CA, they can no longer attempt to collect on it. Or issue a 1099-C.

Sometimes an OC will not let you pay them when they have only assigned the debt to the CA. You need to find out for sure.

If that is the case the CA should have let the OC know it was paid.

Thats what it seemed to read online to me, but I have no idea. On my credit report it says the debt was sold under their account.

Re: 1099-C? Anyone else have this issue with paid debt?

Anonymous — Fri, 01 Feb 2013 18:20:42 GMT

If it was sold they cannot send a 1099-C. Period.

If it was paid the CA can't send one either.

You can always write a letter to the IRS and give them proof it was paid to the CA.

Re: 1099-C? Anyone else have this issue with paid debt?

jcstarkey8826 — Fri, 01 Feb 2013 18:22:54 GMT

@Anonymous wrote:
If it was sold they cannot send a 1099-C. Period.

If it was paid the CA can't send one either.

You can always write a letter to the IRS and give them proof it was paid to the CA.

I will do that! this way I dont have to worry about the tax prep being shady. Thanks for the input, I feel confident in my understanding now!

Re: 1099-C? Anyone else have this issue with paid debt?

Shogun — Fri, 01 Feb 2013 18:23:07 GMT

+1 If they sold the debt, they have no claim to any of it. They can't issue a 1099-C. That's double dipping.

Re: 1099-C? Anyone else have this issue with paid debt?

Anonymous — Fri, 01 Feb 2013 19:01:19 GMT

I had this happen a few years ago. I had to show the IRS I was insolvent that year - that is, my debts exceeded my assets. If this is the case, you would not have to pay additional tax, and that is probably what your tax preparer was going to show. Google 1099-c insolvency exclusion and the IRS info will come up. There is a worksheet you have to do and include with your taxes. For 80% of the people that get this form, that is easier than going back to whoever is reporting it and saying they are wrong. It doesn't mean you declared bankruptcy either, just that your debts exceed your assets.

Re: 1099-C? Anyone else have this issue with paid debt?

Anonymous — Fri, 01 Feb 2013 19:05:00 GMT

also, I just re-read your original post and a bank or cc company will absolutely write off debts - since 2008, that has been the norm. I work in the financial services industry and there is definitely an increase in the # of people receiving these as a result of 2008-2009 foreclosures.

The same thing happened to me - I paid a collection agency and the original cc company sent me the 1099-c.

Re: 1099-C? Anyone else have this issue with paid debt?

Anonymous — Fri, 01 Feb 2013 19:10:11 GMT

@Anonymous wrote:
also, I just re-read your original post and a bank or cc company will absolutely write off debts - since 2008, that has been the norm. I work in the financial services industry and there is definitely an increase in the # of people receiving these as a result of 2008-2009 foreclosures.

The same thing happened to me - I paid a collection agency and the original cc company sent me the 1099-c.

Yes it does happen all the time. However, when the OC no longer owns the debt, it is illegal for them to attempt any collection of the debt, including a 1099-C.

If the OC still owned the debt and not the CA, yes, then the OC could send you a 1099-C.

Re: 1099-C? Anyone else have this issue with paid debt?

RobertEG — Fri, 01 Feb 2013 19:20:51 GMT

I believe that what the article was trying to say is that a charge-off by an OC is not basis for issuing a 1099c.

A charge-off does not cancel the debt, it is simply an accounting measure that permits them to alter their books, and thus receive a tax writeoff.

The entire debt is still owed to and collectible by the OC or their heirs.

However, upon satisfaction of a debt, whoever the owner might be, if they settle for less than the full amount of the debt, the debt is legally satisfied.

They are thus cancelling any obligation to pay the difference between the amount of the debt and the amount they accepted.

The IRS considers that income to the consumer, and if more than $600, requires the settling party to notify them and the consumer of the tax obligation.

A 1099c. They dont make distinction between who the debt originated with, they want their cut.

Re: 1099-C? Anyone else have this issue with paid debt?

llecs — Fri, 01 Feb 2013 19:33:00 GMT

@jcstarkey8826 wrote:
@Anonymous wrote:
Any time you settle a debt, without it saying the debt was considered paid in full, they can come after you for the rest.

If the 1099-C is for that amount, then, yes, it is possible. If it for the entire amount they can't do that.

A CA can give a 1099-C but they do need to own the debt.
thats the weird part. the debt was sold to a CA (for sure sold, could not pay OC, I tried) but the 1099-c was from the OC and the original amount.

Some OC-CA collection agreements forbid the OC from collecting on the debt and if they receive funds, must forward it to the CA. It's not uncommon for an OC to deny any request for a payment. In your scenario, it's possible that the OC still owned the debt and the CA assigned to collect. In paying for some of my past mistakes, I had OCs deny any payment attempt telling me I had to call the CA. It sounds like the CA owns it but it is the OC that owns it. Slightly not related, I hired a CA to collect on a commercial customer. Part of the agreement stated that after X months of collection attempts by the CA (think it was 2 or 3), they would notify me and I was not allowed to accept any payments from the debtor. It was that point the agreement stated that the CA took over everything, including attempts to sue, but would take a bigger cut. Any payments mailed to me in that time I had to endorse over to the CA.