Recently, a Tennessee federal bankruptcy court held that when a lender sends a Form 1099-C to the debtor, it is an admission that the debt has been discharged and the lender will no longer attempt to collect on the debt. The court relied on prior cases where the cancellation of debt is interchangeable with the discharge of debt.
Furthermore, the judge criticized the lenders for playing both sides of the coin in respect to 1099-C’s. On one hand, the lenders argue that the form “is filed merely to comply with the Internal Revenue Service’s reporting requirements.” On the other hand, the lenders argue that “the issuance of an IRS Form 1099-C is not an attempt to collect a debt; instead, it is a declaration under penalty of perjury that the debt has been canceled.” According to the court, the lenders cannot have it both ways. (William Reed Case, case No. 12-30049, decided May 14)
Unfortunately, there are other cases in other jurisdictions holding the opposite view, i.e. that the form is not an admission that the loan has been discharged. So, ultimately, the issue will be decided by the Supreme Court.
Kevin Fallon McCarthy
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