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.