What is a 1099-C and Why did I Receive One? March 14th, 2012
You may be subject to receiving a 1099-C form if you settled a debt with a lender and received $600.00 or more in savings as a result. A settlement is considered a “forgiven debt”, which is a positive net gain to the consumer and as such is considered income by the IRS. That money went somewhere, and the IRS doesn’t like to leave empty-handed, so the IRS then turns to you to collect income tax on your new “income” (in the amount of the forgiven debt).
For example: If the consumer purchased a $3500.00 living room suit, he defaults on his payments, and then he/she reaches a settlement with the lender for $1750.00, then the lender has forgiven $1750.00 of the debt, thus, its considered income to you and a loss for them.
Nothing in this world is free.