Legal Question in Credit and Debt Law in California

A finance company that bought over another failed company did not sue me for debt owed to the former company and have in fact given me a Form 1099-c debt cancellation note filed with the IRS.

However with the suggestions of the collection agents from the Failed and closed complany they have added the company that have cancelled the debt as Plaintiffs and then assigned the case to the Collection agents as Assignees for the claims so that the collection agents could collect the cancelled debt for themselves.

Is this claims valid in the small claims court.

The Judge in the small claims court do not even understand the Implications of a Form 1099-C debt Cancellation note. and have given a judgement to the Plaintiffs who have cancelled the Debt naming the collection agents as Assignee.

This is a tossed-up case and the judge may have made a technical error.

How could I get the case dismissed...as null & Void.


Asked on 2/13/12, 3:36 pm

1 Answer from Attorneys

The judge ruled correctly. A 1099-C is a tax matter and accounting matter. It does not affect the actual liability on the underlying debt. Taxes are calculated on the basis of income and expenses. Making a loan is not an expense, it converts one kind of asset (cash) to another kind of asset (accounts receivable). When a loan is repaid, the principal is not income, only the interest. When a loan is not repaid, however, after reasonable efforts to collect the IRS allows the lender to convert it to a tax-deductible expense by treating it as no longer a loan, but rather as income paid to you. The 1099-C is the method the lender uses for putting you and the IRS that they are electing to treat it as an expense to them and income to you for tax and accounting purposes. That does NOT mean the debt is legally ended. All it means is that if the lender later collects anything on the loan, either by collecting from you or selling the debt to a junk debt buyer or other assignor, they must treat that as income rather than repayment. If the assignor collects from you, they also must treat it as income, less whatever they paid for the assignment.

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Answered on 2/13/12, 4:42 pm


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