A trio of lawyers from the law firm of Buckley Sandler have written a comprehensive overview of what to do when attempting to collect on charged-off debt, especially in cases where a 1099-C form has been issued to the individual in question.
The lawyers — John Redding, Sasha Leonhardt, and Jessica Shannon — lay out how a 1099-C form must be filed with the Internal Revenue Service when a debt in excess of $600 is canceled, but also discuss when and if a creditor can attempt to recover on a debt that has been charged off, including when a 1099-C form has been issued to the individual.
The risks in collecting on charged-off debt include potentially violating the Fair Debt Collection Practices Act and the Fair Credit Reporting Act, the lawyers note, but also running afoul of unfair, deceptive, or abusive act or practice (UDAAP) laws.
In summarizing their position, Redding, Leonhardt, and Shannon lay out a series of “precautionary steps” regarding attempting to collect on debt where a 1099-C has been issued.
- Complete Form 1099-C accurately and provide appropriate copies to both the IRS and the debtor.
- Understand the law in the jurisdiction where one is taking collection actions, and consider carefully how to proceed in jurisdictions where courts have held that issuing a 1099-C discharges a consumer’s debt.
- Ensure that all communications with debtors are accurate and precise.
- Identify accounts that pose a greater risk of consumer harm from further collection activity and determine whether additional activity is appropriate and warranted. In particular, the 2014 OCC bulletin notes that accounts of minors, servicemembers, individuals in disaster areas, or nearing the statute of limitations should be treated with care.
- Ensure that all credit reporting of charged off debt conforms with the FCRA, Regulation V, and Consumer Data Industry Association guidelines.
- If a debtor makes payments after a charge off, take appropriate actions under FCRA and IRS regulations, including filing an amended 1099-C if necessary.
