1099c & simultaneous collection

[debee]

I was reading some posts on the forum and someone wrote in that they had defaulted on their second, rec'd a 1099c and a collection call at the same time.

Question: How can it be that a debtor is taxed for the loan amount & charged for the loan amount at the same time?

I thought if you got a 1099c you did not have to pay the debt anymore ...

[angles]

That is my understanding as well. I believe the banks are really lost in these times and it sounds like left hand does not know what right hand is doing. It appears the bank charged the loan off and someone at the bank sent the 1099, and someone else sold the debt to a junk collector.

Just curious, anyone else have this experience?

[DaddyDavid]

You may owe taxes on the money they lose.

I was reading some posts on the forum and someone wrote in that they had defaulted on their second, rec'd a 1099c and a collection call at the same time.

Question: How can it be that a debtor is taxed for the loan amount & charged for the loan amount at the same time?

I thought if you got a 1099c you did not have to pay the debt anymore ...

You take a 100K mortgage. It forecloses. They sell it for 60K, meaning they lost 40K. You will get a 1099c for 40K income, the money they lost. You might owe income tax on that 40K. There's a form from IRS you can complete that if your liabilities exceeded your assets at the time of the foreclosure, then you are exempt from owing tax on that 40K.

[DaddyDavid]

Opps. The collection? You owe the lender the 40K. If you paid that you would not be at risk for income tax on that 40K, no. If it is a mortgage you speak of, that they are trying to collect, some states don't allow deficiency judgment on a house, check your state regs. AZ for example doesn't allow for that for a SFR. So the 40K the lender lost cannot be legally collected, but the 1099C is a different thing, tax related.

[HHM]

Yep, this can happen, and not even in the way DaddyDavid described
See Debt Buyers Assoc. vs. Snow, http://www.ltclg.com/images/dba-opinion.pdf

There is a difference between a lender discharging the debt (which precludes further collection), and an IRS triggering event that requires the issuance of a 1099-C. IRS regulations may require the issuance of a 1099-C in certain circumstances even if the lender has not chosen to discharge the debt.

[donnaeve]

Such bull

My husband and I had received a 1099-c from our second mortgage company back in august (we still live in the house and are up to date with first). A week later we received letter from a collection company (who we later found out is a subdivision of the mortgage company) that they are collecting the debt. I have met with a lawyer and we are filing Chapter 7 in 2 weeks (my intake interview is on thursday). I'm not sure yet how it is going to play out with the second mortgage. They are our biggest concern.
I think that it is really shady that a mortgage company can reap the tax benefits by sending you a 1099-c and then turn around and give the debt to their "brother" and split what ever they can get out of you. What a crock. BTW, we did amend our 2009 taxes to reflect our new "income".