NO! NO! NO!
Consumers all across this country are receiving Notices of Debt Discharge, reported to the IRS in the form of 1099-c forms. The consumer may suffer serious tax penalties (the “forgiven” debt may be counted as income while at the same time they may later be pursued for this debt by debt collectors and that pursuit may give consumers another tool to fight the debt collectors.
But don’t just rely on my opinion, listen to what the bank lawyers have to say:
LENDERS BEWARE!
In light of this opinion, lending institutions should strongly consider whether an “identifiable event” (as defined in 26 C.F.R. § 1.6050P-1) has occurred before filing a Form 1099-C. The list of “identifiable events” contemplates instances where the debt has, in fact, been discharged and is no longer enforceable. The financial institutions in Leonard and In re Reed appear to have filed their Form 1099-Cs before the actual occurrence of an “identifiable event” — i.e., before a discharge in bankruptcy and before the cancellation of a deficiency in a foreclosure proceeding — thereby opening the door for borrowers to dispute the validity of the debt.
