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[CompTweaker]

One would think that if the IRS considers this "income," then one has a reasonably strong case against a JDB attempting to collect on a debt that has been essentially "paid." I know very little about how legal value of a 1099, but it is my understanding that a "charge-off" is a movment of an account receivable off the "books," where a 1099 is a statement that the taxpayer received a benefit of value; cash, debt forgiveness, etc.

If I received a 1099 for debt forgiveness and that was the intention of the 1099, I would certainly do more research if a JDB eventually attempted to collect.

Good points. I have wondered about this myself. So it would have to be the OC sending the 1099, right? The JDB wouldnt have the right to send it since they purchased the debt for pennies on the dollar, and they are essentialy not out the entire amount of the charge off. Ive always heard that the 1099 is sent only if you work out a settlement.

[treehugger1]

I agree with BB on the point related to being ready to file a BK if one receives a bizarre 1099 from a JDB or CA. Why run the risk of an extended fight and research and cost, when BK takes care of the problem through a simple discharge of debt. I do have to wonder how many JDB's have issued illegal 1099's.

[CompTweaker]

I agree with BB on the point related to being ready to file a BK if one receives a bizarre 1099 from a JDB or CA. Why run the risk of an extended fight and research and cost, when BK takes care of the problem through a simple discharge of debt. I do have to wonder how many JDB's have issued illegal 1099's.

Just remember, the JDB still has to prove they own the debt and prove the debt is yours. So if a lawsuit comes up, and they lose because the debt owed was not proven, then the JDB opens themselves up to FDCPA legal action if they choose to pursue sending a 1099. And the 1099 can and should be challenged. The risk you mention is worth it if you can prove violation http://www.brokencredit.com/?p=2039
I agree, BB made good points and posted some good links, and if you're worried about being exposed to a 1099 on proven debt, its probably best not to try and settle with the OC or JDB since the amount it could cost you in taxes on it may exceed the cost to file a ch.7 BK. On the other hand, if you can take the tax hit, then maybe it will be worth it.

[treehugger1]

Comp, great link. I printed out the IRS opinion!

All told, there is now one more reason to keep all your past CC and unsecured statements! Especially if you could be months or years away from filing a BK. The fact that a 1099 should be based on principle really makes a potential mess of things for CA's sending 1099's. The IRS opinion even eludes to the FDCPA "false and misleading" information rule. LOL.