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From the Experts at Credit.com

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 Credit.com’s free Credit Report Card.


  • http://www.Credit.com/ 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.

  • http://www.Credit.com/ 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.

  • http://www.Credit.com/ 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.

    • tay

      I’ve been receiving calls from a collection agency regarding a 1099c filed in my name. They verified my last 4 social security number. I just asked who were they looking for. The representative was very rude so I didn’t validate who I was. I haven’t received anything in the mail from the irs regarding this issue are that collection company. What should I do? I dealt with a collection company in the past and they were not professional nor reporting that I was making payments. My account was sold multiple times to other companies. So I’m weary to what I shall do in this case. I have no knowledge of what the debt is.

      • http://www.Credit.com/ Gerri Detweiler

        Tay – This sounds scammy. If they did file a 1099-c they would be required to send you a copy. It sounds to me like they are trying to use that threat as leverage to get you to pay a debt that may not even be legitimate. Insist they put it in writing. 9 Signs You Are Talking to a Debt Collection Scammer

  • http://www.Credit.com/ 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?

  • http://www.Credit.com/ 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?

      • http://www.Credit.com/ Gerri Detweiler

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

  • http://www.Credit.com/ 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.

  • http://www.Credit.com/ 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

  • http://www.Credit.com/ 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.

  • http://www.Credit.com/ Gerri Detweiler

    Not that I am aware of.

  • http://www.Credit.com/ 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?

    • http://www.Credit.com/ 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

  • http://www.Credit.com/ 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.

  • http://www.Credit.com/ Gerri Detweiler

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

  • denalla

    I received my credit report as we are trying to buy a house and there was a credit union that had canceled an old debt about 5 years ago. I never recall receiving a 1099-C yet I know that they did report it as my accountant notified me that I had to pay additional taxes due to the canceled debt. It still shows as unpaid balance on 2 of the credit bureaus, and closed on the other. Is there any way to get a copy of the 1099-C so I can begin fixing this?

    • http://www.Credit.com/ Gerri Detweiler

      Your accountant should be able to tell you how to request the wage and income transcript for that tax year. But you don’t need it to dispute the balances. You can still do that directly with the credit reporting agencies.

      However, if you have a mortgage loan in process do not do anything without talking with your loan officer. Here’s why: How a Credit Report Dispute Could Stop You From Buying a Home

  • Kevin Goughnour

    So I called a lender yeaterday and asked for some kind of paperwork for a debt that was forgiven last year. They replied that they would not be sending any to me. I’m a little hesitate about filling my taxes. Any thoughts?

    • http://www.Credit.com/ Gerri Detweiler

      You are supposed to report cancelled debt regardless of whether you get the form or not. One option would be to see if you qualify for the insolvency exclusion. (IRS Publication 4681 has the worksheet.) If you do, simply file as if you received the form. If you don’t, then you’ll have to decide how you want to proceed. If they later file a 1099-c you can amend your return.

  • Gr8ful Becca

    I received a 1099-c? from bank of america for a charge card. I am still being pursued by the debt collectors. When I asked debt collectors for balance and an itemized statement of payments, they told me they didn’t have to and then sold the debt to another of their agencies. These are all operating under the same parent company. This particular debt shows up on all 3 credit reports with DIFFERENT agencies trying to collect. What are my choices of action, if any. This was filed on my tax returns last year. Another question. If I were to marry does my partner take on my debt before we get married? Is there any way I can protect him from my debts?

    • http://www.Credit.com/ Gerri Detweiler

      With regard to the 1099-C, have you tried filling out the insolvency worksheet in IRS publication 4681? If you qualify for the full exclusion you may be able to avoid including that amount in your taxable income.

      As for the collection agencies, you may either want to talk to a consumer law attorney or file a complaint with the Consumer Financial Protection Bureau. Refusing to validate the debt and/or to sell it when you dispute it may not be legal. It’s worth at least exploring that.

      As for bringing your husband into this, I wrote about that here: Could Your Spouse’s Tax Problems Affect You?

  • Gr8ful Becca

    I also used the insolvency worksheet last year when i got this notice.

  • Archpeg

    I sold a home thru short sale last year. I have not received any documents regarding taxes, loan paid off, etc. I normally complete my taxes myself before mid February. If I receive a 1099c do I have to pay taxes on this? Is it too late to declare bankruptcy as I do not have any funds to pay taxes on 20,000 of forgiven debt?

    • http://www.Credit.com/ Gerri Detweiler

      Have you used IRS Publication 4681 to see if you qualify for the full insolvency exclusion or the Mortgage Forgiveness Debt Relief Act exclusion? If you do then you won’t have to worry about considering bankruptcy.

      If not, please talk with a tax professional asap to find out whether bankruptcy is an option at this point.

      • DJCapo

        If you receive a 1099c from a credit card that was charged off in 2008 from tx…and there was never a settlement made..could you advise the statue of limitations to be able to file an exclusion..

  • dr j

    I received a 1099 c from Bank of America. I looked at how much I may be getting back from my tax return this year on a tax refund estimator. Will that charge come out of the refund I may be getting

    • http://www.Credit.com/ Gerri Detweiler

      You’re not quite thinking of it correctly. They don’t just subtract that amount from your refund. The amount shown as canceled debt on the 1099-C is considered income and you add it into your taxable income before calculating your refund or what you owe. However, if you qualify for the insolvency exclusion you will be able to exclude part or all of that amount from your taxable income.

  • C Bond

    Once a 1099-C has been issued (by Chase in this instance), do they need update the reporting to the credit bureaus of a zero balance. Chase is saying that they don’t have to update my credit report and can leave the past due balance reporting. I can’t seem to find any information of this specific topic.

    • http://www.Credit.com/ Gerri Detweiler

      This is a really good question – and a controversial one. I need to do some digging. Hope to respond in more detail soon.

    • http://www.Credit.com/ Gerri Detweiler

      It’s an interesting question – and a somewhat controversial one. I need to do some digging. Can you give me a little more info? Was the debt charged off? When? Has there been subsequent collection activity?

  • larry

    I had a 2nd mortgage canceled by HFC because I had been struggling with payments. I did not make any payment in 2014, tried to contact them in November to make arrangements. They notified me the loan had been canceled, lien removed in August. I never received any paperwork from them after June. In february received a form 1098 but no 1099-c. They informed me the loan was discharged 4 years ago in my bankruptcy and they were not sending me a 1099-c. Forget about it. How can they do this, how do I inform the iRS? Can they come after me 5 years from now?
    What can I do to protect myself?

    • http://www.Credit.com/ Gerri Detweiler

      Debt discharged in bankruptcy is not taxable and they don’t have to send you a 1099-c. Are you saying you didn’t discharge it in bankruptcy?

      • larry

        They say it was discharged from the bankruptcy4 years ago, but I was told mortgages cannot be discharged so I continued paying primary and second. HFC said I didn’t need to pay the 2nd mortgage but they would continue the lien until it sold. When they canceled in August they released the lien. But still no 1099-c. Should I assume one will show up in 2-5-9 years? My accountant says to get a copy of the lien release, and just hang onto the file. Thanks for replying.

        • http://www.Credit.com/ Gerri Detweiler

          Does your attorney say you discharged the debt or not? (Mortgage debt can be discharged in some cases, and especially in the case of second mortgages.) Sounds like that’s key. If not then did you qualify for the Mortgage Forgiveness Debt Relief Act exclusion? I wish I had a simple answer but some of these situations are quite complicated unfortunately.

          • larry

            Hi again Gerri, I will check with the law firm. I was not told if it was discharged or not. I was told mortgages can’t be discharged. But the thought that the 2nd mortgage would stick around as a lien for 20-30 years didn’t work either. So I continued to pay (in distress) hoping to pay it down, or off. If it was discharged, and is now canceled with no lien just seems too easy.

  • Ryan

    I received a 1099-C in the mail for debt that I’ve never had. I called the bank that the debt is supposedly with but they had no record of the debt either. My social is on the form and address, but a business name that doesn’t exist instead of my name. Any advice on trying to figure this whole thing out. The bank who supposedly sent this has been zero help.


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  • Meet Our Expert

    gerri_detweiler GravatarGerri Detweiler is Credit.com'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 TalkCreditRadio.com.
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