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Will a 1099-C Hurt My Credit Score?

by Gerri Detweiler

Will a 1099-C Hurt My Credit Score?

If you are one of the unlucky taxpayers who have received a 1099-C form reporting “cancelled debt income,” you may wonder whether a 1099-C would affect your credit scores.

The answer is “no” — and “yes.”

A 1099-C is a tax form that the IRS requires lenders to use to report “cancellation of indebtedness income.” This form must be filed in certain circumstances where more than $600 in debt is cancelled, or goes unpaid for a certain period of time. The lender files this form with the IRS and a copy is supposed to be sent to the taxpayer as well. A copy of the 1099-C is not supplied to credit reporting agencies, though, so in that respect, the fact that you received the form has no impact on credit reports or scores whatsoever.

Does that mean you don’t have to worry about your credit when you get one of these forms?

Not exactly. The event that triggered the 1099-C — unpaid credit card debt, a foreclosure or short sale, vehicle repossession, for example — almost certainly has been reported on your credit reports. In some sense, then, the damage has already been done.

As we’ve explained in other articles, there is a great deal of confusion around these forms. Sometimes they are issued for the wrong amount or in the wrong year, and you, the taxpayer who gets one of these forms, has to try to deal with those inaccuracies.

That’s where your credit reports can come into play. They can be a valuable source of information when you are dealing with a 1099-C. Check your free credit reports to help determine:

When the lender claims you defaulted on the debt. One of the main ways consumers avoid paying taxes on cancellation of indebtedness income is by claiming the insolvency exclusion. To do that, they need to compare their liabilities to their assets right before the debt was cancelled. Your credit report can help jog your memory about when your credit card was charged off, for example, or when your vehicle was repossessed. You may need those dates when filling out the insolvency worksheet in IRS Publication 4681.

It can also be helpful in situations where a creditor is issuing a 1099-C for an old debt. We have received numerous complaints from consumers that they have received these forms for debts that were written off years ago. If the credit report shows that a debt was charged off six years before a 1099-C was issued, that may be useful in helping to establish that the 1099-C was issued in the wrong tax year. (Generally a 1099-C must be issued for the tax year an identifiable event, like cancellation of the debt, occurred, or after three years of no substantial collection activity.)

Whether a debt was included in your bankruptcy. Another way consumers avoid paying taxes on cancelled debt is by letting the IRS know they discharged that debt in bankruptcy. While your bankruptcy discharge papers are the best way to confirm which debts were discharged, you may have put away your bankruptcy papers and have trouble finding them. If so, your credit report should list the date your bankruptcy case was filed and discharged, as well as indicate which accounts were included in your case.  That information can be useful while you try to track down your paperwork. (You may have to request it from the bankruptcy court if you did not keep a copy.)

Because a 1099-C is issued as a result of a problem paying a debt, it’s helpful to obtain your free annual credit reports. This can assist you in understanding the dates and amounts listed on one of these forms. Once you have dealt with the cancellation of indebtedness income tax issue, consider checking your free credit scores to see how your credit has been affected. You can do this using’s free Credit Report Card.

  • Gerri Detweiler

    Technically the 1099-c and the credit report are two separate issues. The IRS requires a 1099-c be sent in certain situations, but they specifically say that it doesn’t mean the debt can’t or won’t be collected just because a 1099-c has been issued. How is the account listed on your credit reports? As a judgment or collection account? If so then it doesn’t really matter since a zero balance on those accounts isn’t likely to help your credit scores anyway.

  • Gerri Detweiler

    I am sorry I don’t understand the situation. You paid it off but the credit union said you still owed debt? When did that happen? Did you dispute it at the time? And when was the 1099-c filed? Did the IRS contact you? Who is telling you to find old paperwork? Please be as specific as possible so I can direct you to the right resources.

  • Gerri Detweiler

    You’ve got a bunch of problems here: the 1099-c/IRS (do you owe taxes), the reporting issue (is it correct?) and the deficiency (could you be sued?)

    On the 1099-c issue it may be that they sent it too late since the state statute of limitations had expired. I’d suggest you read this article: The Little-Known Form for Avoiding a Big Tax Bill

    For credit reporting purposes it sounds like they are reporting the wrong date if it was really charged off in 2008. I’d suggest you either talk with a consumer law attorney or file a complaint with the Consumer Financial Protection Bureau.

    And with regard to being sued it sounds like you will have to cross that bridge if you come to it.

    Keep really good records throughout this process – what you disputed when – and and records you can dig up showing what happened in 2008.

    Let us know how it turns out.

  • Gerri Detweiler

    Try filing a complaint with the Consumer Financial Protection Bureau. They seem to be doing a great job helping consumers. Will you let us know what happens when you do?

  • Gerri Detweiler

    I assume this account is reported as a charge off or collection account. Is that correct? If so then unfortunately getting the balance zeroed out probably won’t do much, if anything, for your scores since the main factor is the negative payment status of the account. After seven years it must be off your report and you are approaching that time frame in just two years. You may get better results by focusing on building better credit.

    • DanGan

      According to the BBB reply “A 1099-c is sent for any principal forgiveness of 600 or greater, we are also required to report the status as having been charged off and settled for less than full balance”

      But this was in 2009, so they never reported it as being charged off they reported it as being still owed. This has been preventing me from persuing any new bank accounts or abilities to really bring my credit score up.

      I thought their reply was a win for me, even if a small one, since it does show that I don’t owe it….. Right?

      It’s been almost 6 years, does this update from mean it’s going to sit on my credit score for another 7 years from now?

      • Gerri Detweiler

        I still can’t picture how this is being reported. I’ll email you.

  • Gerri Detweiler

    It all depends on how the creditor reports it on her credit reports and I have no idea what they’ll decide. There is no specific reporting category that I am aware of for forgiven debt so it might be reported as settled…? She will have to check her credit reports and see ,and if she believes the way they report it is inaccurate, she can always dispute it.

  • SoCal949

    I love how companies like American Express send a 1099-C which under tax code is “forgiveness of debt” but then illegally retain the debt internally and on your credit report. They got nailed by the Consumer Credit Agency for doing this but are back doing the same thing all over again. Legitimate use of 1099-C makes the debt zero since they wrote it off and that is the purpose of the 1099-C. If you still owe it or the balance is retained in any way, then it is incorrect. Problem? No severe penalties against creditors like American Express for doing so.

  • Gerri Detweiler

    It is counted as regular earned income at your tax rate for that year. But you may be able to avoid taxes onit if you are insolvent. Now – when you are settling – is the time to fill out the insolvency worksheet. We give more instructions in this article: 1099-C In the Mail? How to Avoid Taxes on Cancelled Debt

  • Gerri Detweiler

    We talk about disputing a 1099-c in this article:
    The Little-Known Form for Avoiding a Big Tax Bill. She may also need to file an identity theft report theft with local law enforcement to provide the creditor.

  • Gerri Detweiler

    Not that I am aware of.

  • Gerri Detweiler

    That’s a tricky one. Technically the fact that they send to a 1099-C doesn’t necessarily mean that there is no balance. There are a number of actions that can trigger one of these forms, and according to the IRS it is not proof that the debt has been erased. However, there are some consumer law attorneys who have taken that position in court successfully.

    You could certainly try to dispute the debt on your credit report and see if you can get it updated to a zero balance. You may not see a big boost in your credit score though, since the fact that it was charged-off/repossessed can still remain for a total of seven years. And it’s that payment history that affects your credit scores more than the debt itself.

    A Step-By-Step Guide to Disputing Credit Report Mistakes

  • Kevin Haney

    I had a vehicle repossessed in 2009, I am buying a house and Toyota is sending me a 1099 c, will this remove the debt from my credit report?

    • Gerri Detweiler

      No. Repossessions may be reported for seven years from the date of repossession. Why are they sending you a 1099-C five years after the fact? Has there been any collection activity on the debt? If not you may want to challenge it – it’s quite late to be sending that form. We wrote more about that here:
      The Little-Known Form for Avoiding a Big Tax Bill

  • Gerri Detweiler

    The IRS says that the issuance of a 1099-c does not necessarily mean the debt is forgiven. Whether or not Capital One can still collect depends on the statute of limitations in your state, among other factors. I know some consumer law attorneys are using the issuance of a 1099-c as a defense against the debt. You may want to consult a consumer law attorney to find out if you still have to pay this debt. If you are having trouble finding an attorney you can find one through the website of the National Association of Consumer Advocates.

    Another thought – is it actually Capital One trying to collect or a collection agency? How long ago did you default and what state do you live in? The debt may be outside the statute of limitations.

  • Gerri Detweiler

    No idea – have you tried contacting them? I’d love to hear what they say.

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  • Meet Our Expert

    gerri_detweiler GravatarGerri Detweiler is's Director of Consumer Education. She focuses on helping people understand their credit and debt, and writes about those issues, as well as financial legislation, budgeting, debt recovery and savings strategies. She is also the co-author of Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights, and Reduce Stress: Real-Life Solutions for Solving Your Credit Crisis as well as host of
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