Charge-Offs

Should credit reports reflect $0 balance if you receive a 1099-C from lender

QUESTION: I have 3 credit cards that were reported as charge offs on my credit report in 2012. I recently called the creditors and each one stated that they’re no longer trying to collect the debt and they’ve submitted 1099-Cs to the IRS.

Each charge off is still showing a balance on my credit reports, which are making my credit utilization score high.

Can I dispute the balance of these charge off since 1099-Cs were submitted for them? Its seems to me that they should be reported as a zero balance on my credit report because the IRS is considering this to be income that I have to pay taxes on.

ANSWER: You are correct in your thinking. The very nature of a 1099-C is that it is a cancellation of debt according to the IRS. Whether the debt is cancelled, discharged or forgiven, the lender has forgiven the debt, therefore the balance should be $0.

I can only suggest that you dispute the debt with the credit bureaus and request they ZERO out the balances. A zero balance should help raise your credit scores. Supporting documentation such as a copy of the 1099-C form might be helpful to submit with the dispute. If the lender verifies the accuracy of the reported amounts, make a complaint directly with the Consumer Financial Protection Bureau.

And, you should consult a tax professional if you have not paid the tax on the forgiven debt amount. A good tax professional should be able to assess whether you owe taxes on the forgiven debt because a 1099-C does not necessarily impose a tax obligation on you.

Advertiser Disclosure: RebuildCreditScores.com has financial relationships with some companies mentioned on this site, and may be compensated if consumers choose to apply for or purchase products via links in our content. However, whether or not we are compensated does not determine which products we mention or result in preferential treatment in our editorial pieces.

Copyright © 2016 Rebuild Credit Scores

To Top