What is a 1099-C

A form 1099-C is a document issued by a creditor, typically a mortgage or vehicle lender or credit card company, which reports that income to a borrower for tax purposes. The “C” stands for cancellation of debt, which can, under certain circumstances, be translated into “income” for calculating income taxes. This can be a potentially very large and troubling issue; many borrowers unknowingly become responsible for large tax debts because of a 1099-C, which debt cannot be typically discharged in bankruptcy for several years. There are many remedies for this problem; specifically, in the event of the filing of a bankruptcy, a 1099-C generally becomes irrelevant.

A recent Arizona Court of Appeals Opinion provides further help for borrowers in this situation. The Court essentially held that the lender in this situation (foreclosure or short sale, or a vehicle deficiency) may not attempt to collect on a deficiency while issuing a 1099-C. This was held in the opinion of December 15, 2009, entitled AMTRUST BANK V. FOSSETT, Case Number. 1CACV 08-0840. This case was sent back to the trial court for further review. A person who has this situation should promptly seek legal advice, and stand up to a creditor who is attempting to collect on a debt which is already a loss. The link to review this opinion is http://www.cofad1.state.az.us/opinionfiles/CV/CV080840.pdf

Originally posted March 5, 2010