1099-c Cancellation of debt on an un-repossessed car?
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  1. #1
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    Jan 2007
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    1099-c Cancellation of debt on an un-repossessed car?

    Ok, here is the situation, any help or pointers to the right resources to look up the info myself greatly appreciated.

    Somewhere around seven or eight years ago, I lost my job and had to move back out of state for a while, I didn't have much credit to speak of, just a couple of low limit credit cards and a car loan.

    I held on to the car and kept up the payments at first, then fell behind for a while, then caught back up, then my financial situation broke down to the point that I just stopped paying them. The advice I was given (and for all I know it was the wrong advice) was to just put the car in storage somewhere until I was back on my feet and could negotiate something with the loan company, since otherwise it would get repo'd, sold off for a small amount, and I'd still owe almost the whole amount but with no car to show for it.

    Fast forward to today. I got a 1099-c form stating a cancellation of debt for the amount of the loan. I didn't get any other sort of paperwork, just an IRS form with no real clue of what to do. I've done the basic research, it would seem that the loan has been canceled leaving me with a tax liability and the loan company with a writeoff, so far I'm clear enough.

    What I'm completely unsure of is the status of ownership of the car itself and any further debt collection in regards to it. Everything I've been able to find talks about these cancellations of debt being common after a car is repossed, but this one never was, and it would appear that the canceled debt is the full amount I owed on the car.

    So what happens now? All I can really tell for sure is that I owe the IRS taxes on the amount since it's being canceled, but what does that cancelation actually mean? Can they still attempt to collect on the debt and/or repossess the car even while canceling the debt and reporting it as income?

    Answers are helpful, but even some pointers of where to look for concrete information would be really welcome.

    Thanks in advance


  2. #2
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    Jan 2007
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    Well, I had figured that this might be an unusual question, so the lack of an answer isn't that big of a surprise.

    Does anyone have any recommendations for where I might start looking for the information I need? Even something that just explains clearly what a cancellation of debt means would help.

  3. #3
    Join Date
    Jan 2007
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    Quote Originally Posted by debtmonkey View Post
    Ok, here is the situation, any help or pointers to the right resources to look up the info myself greatly appreciated.

    The advice I was given (and for all I know it was the wrong advice) was to just put the car in storage somewhere until I was back on my feet and could negotiate something with the loan company, since otherwise it would get repo'd, sold off for a small amount, and I'd still owe almost the whole amount but with no car to show for it.
    Another dangerous teacher on the loose. Hiding the vehicle like that can get you a few years in the pokey.
    Fast forward to today. I got a 1099-c form stating a cancellation of debt for the amount of the loan. I didn't get any other sort of paperwork, just an IRS form with no real clue of what to do. I've done the basic research, it would seem that the loan has been canceled leaving me with a tax liability and the loan company with a writeoff, so far I'm clear enough.
    So long as you report the 1099 on your tax return and pay any taxes on it then you are clear enough with the IRS.
    What I'm completely unsure of is the status of ownership of the car itself and any further debt collection in regards to it. Everything I've been able to find talks about these cancellations of debt being common after a car is repossed, but this one never was, and it would appear that the canceled debt is the full amount I owed on the car.
    You should have disputed the debt so as to hopefully keep the IRS from collecting on the tax liability. I don't know whether you can do that or not at this late time. I doubt it.
    So what happens now? All I can really tell for sure is that I owe the IRS taxes on the amount since it's being canceled, but what does that cancelation actually mean? Can they still attempt to collect on the debt and/or repossess the car even while canceling the debt and reporting it as income?
    IRS says they can.
    Answers are helpful, but even some pointers of where to look for concrete information would be really welcome.

    Thanks in advance
    Concrete information? Well, have you tried to sell the car? Probably not. If you did you would find out that they still hold the lien on the vehicle. What you have now is a vehicle you can never sell or junk. There is no way to dispose of it except to cut it up in pieces and sell it to the scrap yard. If you do that they can put you in jail for destruction of their security. If you hide it you can go to jail for that too. If you even go out of state with the vehicle that can land you in jail too.

    You could probably take it somewhere and park it then flatten a tire and let the cops tow it off. They would sell it at public auction as an abandoned vehicle after a while but since it is titled in your name with the finance company as a lien holder they would be likely to notify both you and the finance company that the vehicle had been impounded and will be sold at public auction if the towing and impound fees are not paid by a certain date.

    That will really improve your situation because now they can come after you for the full price of the vehicle. They can take you to court and get a judgment very easily. That would improve your situation too, wouldn't it?? NOT!!!

    Best thing to do is call them up and ask them where they would like you to deliver the car or tell them where it is so they can repo it. An even better thing to do is pay the thing off and get a clear title to it so you don't get a judgment against you or end up with another stone around your neck you really can't ever get rid of.

  4. #4
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    Jan 2007
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    Quote Originally Posted by cap1sucks View Post
    Another dangerous teacher on the loose. Hiding the vehicle like that can get you a few years in the pokey.
    Great. I'm guessing this is something that varies from state to state? Any other info on this aspect would be appreciated, now you've got me worried that there could be legal action out there against me that I just don't know about.

    Quote Originally Posted by cap1sucks View Post
    So long as you report the 1099 on your tax return and pay any taxes on it then you are clear enough with the IRS.
    Well I can report it, but paying taxes, that might be a bit more tricky. At this point I'm going to school, make next to nothing, and was just hit with a 14,000$ tax burden I wasn't expecting, I'm going to need to do some research to see what, if anything, I can do about it.

    Quote Originally Posted by cap1sucks View Post
    You should have disputed the debt so as to hopefully keep the IRS from collecting on the tax liability. I don't know whether you can do that or not at this late time. I doubt it.
    From my understanding, there is basically no way to dispute a secured debt, but credit has never been something I've known much about, so I'm probably wrong here again. Is there anything I should do here, or is it probably late enough not to be worth doing?

    Quote Originally Posted by cap1sucks View Post
    IRS says they can.
    Well that's special. So what is the 1099 about really? They don't expect to get their money, so it becomes my tax burden, but they can still pursue it and get paid even while I'm