What to Do If You Get a 1099-C for an Old Debt

by Gerri Detweiler

NEW YORK (Credit.com) — Questions have poured in this year from readers grappling with how to deal with 1099-Cs they got from lenders reporting “canceled” or “forgiven” debt. I wrote a number of stories addressing the issues they raised, and vowed not to touch the topic again until next tax season.

But the questions kept coming in.

One kept nagging at me: What should you do if you get a 1099-C for a very old debt? Though I had written one story already on that subject, the fact that I couldn’t provide readers with a clearer solution bothered me.

Take Dave, for example. He told us that in 1997 he was in an auto accident. He was out of work for eight months and could not pay his auto loan. The vehicle was repossessed and the $15,000 balance was charged off. The loan was with Chevy Chase Bank. In 2006 – almost nine years later – he heard from a debt collector but he ignored it. The debt was off his credit reports by that time. Capital One had acquired Chevy Chase bank in 2008, but didn’t try to collect from him. In 2011, he got a 1099-C from Capital One reporting $9,000 in canceled debt for tax year 2010 – about 13 years after he stopped paying on the loan. Now he may have to pay an additional $2,000 in taxes for 2010 as a result.

If Dave’s story was the only one I had heard, I would think it was an anomaly, but a number of taxpayers have complained about getting 1099-Cs for very old debts.