Failure to Report 1099-C Cancellation of Debt

What do 1099-Cancellation of Debt cases look like? 

As with any legal issue, it is important to have and understand all of the information necessary to avoid unexpected consequences. At Raburn Kaufman, we will explain exactly what a 1099-C Cancellation of Debt case entails, as well as what documents are needed and what actions have to take place in order to comply with the Fair Credit Reporting Act (FCRA). 

Unfortunately, some creditors, such as credit card companies or auto lenders, fail to report that they sent you, the account holder, a 1099-C debt cancellation form. Meanwhile, the creditors send 1099-C form to the IRS, which can lead to the consumer receiving a smaller tax refund or even paying more in taxes for that tax year. This could leave you, the consumer, with an account that has been written off by the original creditor, that is still reporting its full or partial balance on your Experian, Equifax, and TransUnion credit reports. The credit reporting agencies would then continue to report this debt to third parties, negatively affecting your debt-to-income ratio.

Luckily, these credit-reporting errors can be litigated with the help of an experienced Fair Credit Reporting Act (FCRA) attorney. FCRA lawyers are a subset of consumer attorneys that focus on claims under the Fair Credit Reporting Act.

What Is a 1099-C Cancellation of Debt?

When you take out a loan or apply for a credit card, the understanding is that you will repay your lender or credit card company. Repayments such as these are not regarded as income because you are not keeping the money, and as such, you will not incur taxes on these funds. However, if your debt was canceled or forgiven by a creditor, your canceled debt could subject you to additional tax liability.

The government considers canceled debts as taxable income, and just like any other form of income, the IRS expects you to pay taxes on canceled debts. Creditors report canceled or forgiven debts by filing a Form 1099-C Cancelation of Debt form with the IRS and sending a copy of the form to the debtor. It is not uncommon, however, for creditors to fail to inform consumers about the additional tax liability that accompanies a 1099-C form.

Inaccurate Reporting of a 1099-C Can Negatively Affect Your Credit

A common way that the inaccurate reporting of a 1099-C affects a consumer’s credit is by affecting that consumer’s debt-to-income ratio. Debt-to-income ratio is one of the most important factors that credit reporting agencies use when calculating your credit score. Inaccurate credit reporting of a debt that has been canceled can lead to a lower credit score. A lower credit score could cause creditors to increase your interest rates or deny your credit application altogether, among other unfavorable consequences.

How an Attorney Can Help Correct Errors on Your Credit Report

It can sometimes be difficult to get a credit reporting error removed from your credit report, and because of this, it is always advisable to speak to an experienced attorney regarding your credit reporting issues. If you are the victim of inaccurate credit reporting, you may have a right of action against the credit reporting agency or creditor under the Fair Credit Reporting Act (FCRA).

At Raburn Kaufman, we leverage nearly 25 years of combined experience to provide our clients with unparalleled representation. Our attorneys focus their practice on FCRA matters and understand how to navigate this complicated area of the law. Let us help you protect your rights against credit reporting agencies and creditors who violate the law. Contact us today at 877-662-2455 or email us at info@raburnkaufman.com for a free consultation to discuss your options. Just remember that if we don’t win your FCRA case, you pay us nothing!