Zombie debt, also known as zombie dead, refers to debt that has been written off, discharged, or eliminated. However, despite being transferred from one collection agency to another, borrowers still receive calls attempting to collect on that debt. This type of debt can include any debt that was discharged in a bankruptcy, settled, or obtained through a waiver of deficiency from a short-sale. Essentially, it is any type of debt that continually gets passed from one debt collector to another, even though the borrower has no obligation to repay it. Some may argue that in the case of a mortgage foreclosure, if a 1099 C is issued, the debt is forgiven and therefore gone. However, this is not the case. According to the IRS, the 1099 C is simply a reporting tool used by the bank to inform the borrower and the IRS that it is forgiveness of debt income. The 1099 C itself does not act as a satisfaction, waiver, or release of the debt. It is solely a reporting tool.
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Zombie debt 1099 c Form: What You Should Know
In the latter case, it is important that the IRS contact the business' customers so that they can be informed of the cancellation and the reason for the cancellation. If you receive a cancellation of a debt due to noncompliance, you should review the cancellation form carefully to determine if you owe tax. If you owe tax, you should consult an accountant or lawyer to review your options before contacting the creditor. If You Are a Business Your business may receive an IRS 1099-C when customers pay on delinquent debt for which the business is liable. Creditors may cancel and reduce the debt if you make payments on your delinquent debts in your capacity as the business. However, if you are acting as a business, you will be required to withhold and remit any delinquent payments on account of the business. To the extent that the business receives the 1099-C, the business will need to file a Form 1099-MISC. If this is the first time you have received one of these forms, there are a few important points that you should know: The 1099-C is for a debt you are liable for on account of a business you control. The amount reported generally reflects the amount owed to the IRS on that particular debt. It does not necessarily reflect the amount payable to the customer on the same type of debt. In some instances, when multiple types of debts are outstanding and delinquent, the 1099-C reflects the total amount owing. You may be able to use an “asset adjustment” calculation to determine the amount due on an old debt. For more information, see Pub. Debt cancellation has many purposes in the business world. These include reducing customer payments on debts due to bad credit or lack of credit history, providing payment protection when a customer defaults, and helping to maintain and build credit quality.
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