Fees paid to a company to settle credit card debt & cancellation of debt income

The purpose of filing a claim to probate is to establish that the debt exists. Of course, it can be uncontested. However, in this question was the sending of notice of probate, which implies a contested status.

When a court cancels [or fails to recognize] a debt, it is treated as if it doesn't exist. That's not the same as a debt which becomes uncollectable then expires time-barred.

And I don't see a difference between that and when a creditor, notified of probate, fails to file at all.

No, sending a notice of probate is required to inform creditors that their statute of limitations is being reduced.

It's exactly the same, because that's exactly what it is. The statute of limitations is reduced to four months. That's it. There is no determination one way or the other that a claim is good or bad, unless the claim is denied and the creditor sues. Just like in any case where someone claims someone else owes money.

In one case there is a court determination that the debt was not owed. In there other there wasn't.

Prior to the SoL tolling, there was a debt. Subsequently, there was no debt. A debt becomes no debt by being paid or cancelled. It wasn't paid.

Had the creditor cancelled the debt 1 day before the SoL expired, it would have been a real cancellation, with CoD income, right?

I assert that's exactly what he did, albeit the lazy way.

Seth

If the court had determined that there was never a valid debt, your argument would be correct. But there's no such court ruling.

The court ruled that the debt was uncollectible due to being filed too late. That's not the same as there never was a debt.

Seth

In a rebate situation, I paid $35 for a box of stuff and a $20 check (and it was advertised that way). In a cancellation of debt situation, I owed $35 for that stuff, but they chose not to collect some of it (typically because they knew they couldn't).

Seth

Collecting in court was barred by statute. Did any statute prohibit issuing a 1099-C?

Suppose the 1099-C was filed _before_ the deadline. The creditor still had the _option_ to file a claim with the court, but chose not to. That would clearly lead to cancellation of debt income.

Is a legally uncollectable debt still a debt? I would argue that it is; certainly in colloquial language that applies, but also statutes against collecting gambling debts implies that they are debts. Therefore, subsequent to the SoL barring collection, the debt still existed. However, it isn't clear that there's any income involved with its subsequent cancellation, as that has no real-world effect, so the 1099-C creating income would be a triumph of form over substance.

Seth

And to require it to be paid.

That implies nothing except that the decedent died. It could easily be sent for a perfectly valid debt that the administrator acknowledges, and wishes to pay promptly, so he encourages the creditor to deliver a full bill expediently.

When a court cancels a debt, it no longer exists, but it clearly did previously, else there would have been nothing for a court to cancel.

When a court "fails to recognize" a debt, that says nothing about its existence. "This Court fails to recognize the claimed debt because the contract provided was signed in China and written in Chinese, and according to the translation provided by the claimed creditor, is enforceable only in China under Chinese law."

"This Court does not recognize that debt because it arose as the result of activity (gambling) that is illegal in this state." But not that the subsequent suit, in Nevada, found that the debt did exist and was collectible.

How did it become uncollectible prior to expiring?

Can you quote any such ruling, that "there is no debt", as distinct from "any such debt is uncollectible"?

If a court rules that there never was a debt, then that's the legal situation. If a court doesn't rule, there might or might not have been a debt.

X sues Y (a human); the court rules in favor of X, that Y owes X $1000. This shocks Y, who immediately dies of a heart attack. Since a court ruled that Y owed X, clearly Y's estate now owes X. Whether or not X files against Y's estate, the debt exists.

Seth

Form 1120, Line 15 "Bad Debts".

Seth

No, they expect (say) .2% losses, so the income they report is $16,966.

$166.

Less reserve for losses.

However, when 499 other people _don't_ default, the credit card company adds back the 17k they'd reserved against all those other charges.

Bank tax returns have never been simple.

Seth