Are My Credit Score and I Screwed after a Debt Cancellation?

February 1, 2013 5:17 PM

Was negotiating with the lender (credit card) and was prepared and arranged to pay the full amount this spring. Today I received a 1099-C IRS form notifying me that the debt has been cancelled.

I've been working really hard to pay off all of my debt and clean up my credit score so that I can refi my home and this seems to be a serious setback.

What can I expect now? Can I still negotiate or pay in full to clean up my credit? Is this going to be on my report for 7 years? Since I'm reporting this to the IRS as income, can the lender still sell my debt to a collector?

This was my last debt to pay off other than a tiny amount to Sprint, my wife's car and our mortgage. I was just about to take a loan from my TSP to pay in full, repair my credit score and after some work with the credit agencies, refinance my home.

Any advice or anecdotes about what I should know or expect are greatly appreciated.

Thanks in advance.

posted by snsranch to Law & Government (2 answers total)

Looks like you need to get hooked up with a credit counselor. Check out the National Foundation for Credit Counseling for one in your area (or online).
posted by valkyryn at 7:05 PM on February 1, 2013

You will have to pay income tax on the forgiven amount. They may or may not send you a 1099, but the IRS will know. Start saving up for it now!
posted by The Light Fantastic at 12:31 AM on February 2, 2013