Debt collectors have a new swindle: trying to collect a canceled debt the consumer no longer owes. The creditor will forgive the debt, cancel it and send the consumer an IRS form 1099-C (see sample here), which should forever settle that the debt is canceled. But some debt collectors will still report the balance due to the credit bureaus (Equifax, Experian and TransUnion) and may even send letters or phone calls demanding payment. Consumers can stop debt collectors from collecting these debts and can get these accounts deleted off their credit report.
When a creditor cancels a debt over $600, it must send the consumer an IRS form 1099-C, which forces the consumer to pay taxes on the forgiven amount. Consumers can send a copy of the 1099-C with disputes to the credit bureaus (Sample Dispute for 1099-C, based on the FTC’s letter here). By now, the bureaus have or should have policies in place to remove accounts or account balances if the consumer sends in a 1099-C with their dispute. Within 30 days, the account should be reporting accurately that there is no balance due or have been removed completely. (Consumers can also request a transcript of their tax return with IRS Form 4506-T and send that with the disputes).
Debt collectors (and original creditors) can be more difficult to deal with. Consumers can still send the debt collector a copy of the 1099-C, but there are so many debt collectors these days, that it is hard to know what policy any specific debt collector will have. It is less certain how the debt collector will react, but a debt collector who knows the debt has been canceled should not make any attempts to collect the debt since it is no longer owed.
If the initial dispute does not work and/or the debt collector contacts you even one time trying to collect a canceled debt, consumers can consult with a local consumer protection attorney, like the Williston Law Firm. Consumers who need to find a local attorney outside of Kansas or Missouri, can search for one here.
Even if you already have an attorney, Keith has consulted on cases from other states to assist other attorneys achieve better results for their clients.
