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When you do not pay your bills, the credit card company usually gets after you about it. Eventually they will get the collection agencies involved if you do not respond to their inquiries. After it is all said and done, you may file for bankruptcy, or you may be able to negotiate some other form of payment that both you and your credit card company can handle.

But if, in the long run, you just cannot pay your debt, your credit suffers. Along with some form of punishment or another, you are no longer obligated to pay the debt. Around this time is when you may receive a 1099-C form.

What Is a 1099-C Form?

So you may be standing next to your mailbox looking over this form in your hands, wondering what it is, and what your credit card company wants to squeeze out of you this time. What does it mean when a creditor sends you a 1099-C form anyway? A 1099-C form is a form that basically states formally that your debt is forgiven.

What?

If you have owed money on your credit card, have resorted to the fact that you will never be able to pay it back, and go bankrupt or choose a similar escape, the credit card company will write your debt off. This means that the legally relieve you of that debt that you owe to them on your credit card. This 1099-C form is the legal document that states this to be true, giving you and they proof of the debt forgiveness.

What About the Money?

When you receive such a form, your debt, as we have established, is forgiven. However, because you bought things with this money and did not pay it back, you must count it as income. When you fill out your tax forms, you must include the amount of money that was part of your forgiven debt as income, because really, that’s what it is… free money to you.

Of course there are the prices you have to pay, so that in all actuality it is not free. Your credit reputation is damaged for a very long time, and any chances of you getting a mortgage or a large loan are very slim. You can, however, with credit cards and other forms of credit, build your credit back up to a descent number now so that when that penalty is removed from your credit report, you will have perhaps even better credit than you did before.

Paid in Full

If you end up settling your debt for a lower price than what you originally owed, the credit card company will accept less and still record that you “paid in full”. When this occurs, make sure that they do not report the remaining amount of debt to the IRS making you count it as income. If they report that you have paid in full when the debt paid was a smaller amount that the original, you still do not have to count that as income on your taxes, because they have accepted that as full payment rather than partial.

Perhaps you have had some rotten luck, or simply rotten payment habits in the past, and your credit report and therefore your credit worthiness has suffered tremendously for it. You believe you have what it takes to make all your payments on time and get your credit reputation back up to where it was before you got into this mess. After all, it has been seven years since you made your last mistake, and as far as you know, all of the mistakes that have been infesting your credit report during that time should be dissolved completely by now.

So let’s say you go to check your credit report. Much to your surprise and dismay, those payment mishaps are STILL on your credit report! What went wrong? What happened to all those stories you heard about how your credit report is wiped clean of your mistakes after seven years?

It is true, the negative items on your credit report SHOULD be erased after a certain amount of time… in most cases, seven years. There are some things, however, that can hinder this removal. In order to know how to fix the problem, you have to know what the problem is first.

1. They Could Have Simply Forgotten

You may be paying close attention to your credit report, but the credit bureaus, or the people who come up with your credit report, may not be watching so closely. To them, yours is just one in thousands and thousands of credit reports waiting to be changed and updated every day. If, after seven years, your credit report is not cleansed of your misdeeds, you should call the major credit bureaus, (Equifax, Experian, and TransUnion) and let them know.

2. Extended Punishment

Sometimes, believe it or not, creditors will try to extend the amount of time that the negative items are left on your credit report. How do they do this? Actually, they use YOU.

On your credit report there are dates next to the negative items. These dates represent the time when the seven year period of shame begins. If you are almost done with the seven years, look at your credit report and suddenly feel guilt for all those mishaps, call up the creditor and make the payment, you may have just extended that period of shame ANOTHER seven years.

Actually, this is sometimes done by faulty creditors. Many of them will often try to hurt your credit report more by extending the amount of time that the negative items appear on it. THIS IS ILLEGAL! When the seven years is extended, make sure you know WHY before you just give in.

Besides any of the possible interruptions previously mentioned, after seven years, the bad records on your credit report should be removed after seven years. There are a few exceptions, like bankruptcy, that can last for up to ten years. The good thing about it is that all of the bad reports will go away eventually, but all of the positive items can stay on your credit report for good.