Consumer complaint received 2023-08-14
Product: Credit reporting, credit repair services, or other personal consumer reports — Credit reporting
Issue: Problem with a credit reporting company's investigation into an existing problem — Their investigation did not fix an error on your report
Company: Experian Information Solutions Inc. (NY)

proof that they must delete the trade lines of XXXX and XXXX XXXX Creditors BewareComplying with IRS Rule May Cancel Underlying Indebtedness XXXX XXXX XXXX XXXX XXXX XXXX XXXX Many creditors try to assert additional pressure on their debtors by issuing, or threatening to issue, a form required by the IRS ( form 1099-C ) informing the IRS that the full amount of the outstanding debt is cancelled even though the creditor intends to continue collection activities. IRS regulations require creditors to issue the 1099-C form if they cancel a debt of {$600.00} or more in any calendar year. Domestic banks, trust companies, credit unions, savings and loan associations, and any organization whose significant trade or business is the lending of money are subject to this regulation. Additional regulations ( 26 C.F.R. Section 1.6050 P-1 ) list several identifiable events that trigger the reporting obligation to file Form 1099-C. These events include discharge of debt in bankruptcy, expiration of the statute of limitations for collections, discharge by agreement of the parties, a creditors decision to discontinue collection activity and discharge the debt, and expiration of the non-payment testing period. Nothing in the statutes or regulations prohibits collection following the filing of a form 1099-C. 

The Internal Revenue Service ( IRS ) treats cancelled debt as income to the debtor, which might subject the debtor to federal income tax. Many creditors try to assert additional pressure on debtors by issuing, or threatening to issue, Form 1099-C. However, a recent opinion ( In re Lukaszka, 2017 WL 273516 ) from XXXX XXXX XXXXXXXX XXXX XXXX of the U.S. Bankruptcy Court for the XXXX XXXX of Iowa reveals the peril a creditor may face in issuing the debt cancellation notice. In fact, given this recent decision, debtors in the XXXX XXXXXXXX of Iowa might welcome the receipt of form 1099-C. 

In XXXX, XXXX XXXX XXXX XXXX gave up trying to collect a debt from the XXXX that was secured by a mortgage on the XXXX house and issued Form 1099-C. The XXXX  reported the income and paid taxes on the cancelled debt. They subsequently filed a XXXX XXXXXXXX bankruptcy petition. The credit union opposed the XXXX XXXX XXXX plan because it did not propose any payments to the credit union on the original mortgage debt. The XXXX claimed that the credit union had discharged the debt by virtue of the 1099-C. Ruling in favor of the debtors, XXXX XXXX noted that the issuance/filing of form 1099-C by itself normally will not discharge the creditors underlying claim. Here, however, the notice, when coupled with the evidence that the debtors reported the income on their tax returns and paid the taxes due on that debt forgiveness, caused the debt to be canceled. The debtors were able to confirm their XXXX XXXX  plan based on the bankruptcy courts finding that the credit unions {$60000.00} of unpaid indebtedness was cancelled and that under Iowa law a mortgage ceases to be enforceable when the debt underlying the lien no longer exists. Thus, the bankruptcy court removed both the credit unions mortgage lien and debt from the XXXX house. 

Although XXXX adopted the minority reasoning in these cases, it does strike at the majority rationale, which states that the filing of IRS Form 1099-C alone is not sufficient evidence that the debt has been cancelled. ( See F.D.I.C. v. Cashion, 720 F.3d 169 ( 4th Cir.2013 ). ) Under XXXX, the filing of Form 1099-C combined with the reporting of the forgiven income and payment of associated taxes is sufficient to cause a legal cancellation of the debtors loan and accompanying mortgage lien, at least under Iowa law XXXX 

Therefore, creditors must beware. Under the correct circumstances over which the creditor may have no control the issuing of Form 1099-C may effect a legal cancellation of the debt and release the liens securing the debt. Debtors should welcome Form 1099-C, report it on their next tax return, and pay the taxes due. Although no statutes or regulations prohibit collections on a debt after the filing of a Form 1099-C, creditors should be aware of the associated perils given the XXXXXXXX XXXX XXXX 
Associated People XXXXXXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX