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1099C Form

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What is the name of your state?

I have a Past due Credit Card that was sent to this Collection Agency. I haven't been paying on it because I haven't had much money and because they weren't sending me a statement or bill until this Saturday! Now the stupid Collection Agency is telling me that if I don't pay the Client a certain amount by August 31st, they will report my Debt to the IRS on a 1099C Form! I called them today and the guy tried to tell me it was income but I don't believe him! How can they do that to me when its not really income? What should I do to stop them from doing this? I can't afford to pay the amount they are asking for since I get very few hours at my job. Please help me out, thanks!!


Senior Member
A discharge of a personal recourse debt (such as a credit card or mortgage) is a taxable event and constitutes income. Think of it this way: You had this debt, but the creditor wrote it off and now you don't have to pay. That puts you in the same situation as if you won a lottery and used the money to pay the debt. You'd pay taxes on the lottery, so you pay taxes on the discharge of debt.

HOWEVER, there is a BIG exception to this rule. If you are insolvent when the company discharges your debt, you do not have to claim it as income. Insolvent uses the bankruptcy definitions - your liabilities exceed your assets and/or your expenses exceed your income. Refer to section 108 of the IRC, below. If they send you a 1099C, you probably don't have to include it in income. Just send in a statement with your tax return that you are able to exclude the discharge from income because you were insolvent when the debt was discharged and cite sec. 108(a) of the IRC.

Sec. 108. - Income from discharge of indebtedness

(a) Exclusion from gross income

(1) In general

Gross income does not include any amount which (but for this subsection) would be includible in gross income by reason of the discharge (in whole or in part) of indebtedness of the taxpayer if -
(A) the discharge occurs in a title 11 case [bankruptcy],

(B) the discharge occurs when the taxpayer is insolvent,

(C) the indebtedness discharged is qualified farm indebtedness, or

(D) in the case of a taxpayer other than a C corporation, the indebtedness discharged is qualified real property business indebtedness.

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