cancellation of debt?

Question

i recieved a notice for cancellation of debt as income. i volantarily gave back a car in 1996. the loan was never completely paid off. toyota reported it in 2005. the car was never used for any type of bussiness purpose nor was any part of the car used as a deduction. am i responsible to pay this? its been 11 years so i no longer have any paperwork about the reposession.

Answer 1

Cancellation of debt is considered income. However it can be excluded from your income if you were insolvent (liabilities exceed assets) at the time of the cancellation.

Answer 2

When you stopped having the car and how you used it do not matter for this question. They would matter if the question was about depreciation, which relates to the decreasing value of the car. This question is about the loan. You borrowed money and did not repay it, so you are ahead of the game. From when you got the car loan (sometime before 1996) to 2005, you owed money. Now you don't. Answer is theoretically yes, you owe tax on the amount that you did not repay. However, the year in which they cancel the debt controls on which year's return it should be paid. You may need to file an amended 2005 return.

Answer 3

MarkS is correct. If you were insolvent or bankrupt you do not have to pay on it.

If that was not the case, I do have a question as to the year it should have been reported. Presumably Toyota did not forgive the debt until 2005. This could be confirmed by them (if they sent you a 1099 there should be a phone number) or you could pull a credit report. If it was reportable in 1996, it is out-of-statute now and Toyota should correct that 1099. But you might be opening a can of worms if they only gave up because they couldn't find you before.

Answer 4

When a debt is forgiven (no longer owed by the guarantor) the person who owed the money has to pay tax on the forgiven amount of debt. So if you owed Toyota $10,000 on the car and they forgave the debt it is like making another $10,000 income. You now have to pay tax to the government on that $10,000. You will recieve a 1099 in the mail in the begining of 2008 saying what they reported to the federal government as taxable income for you. You must report this as income (especially if the amount is large becaue the government will know about the debt and will be expecting you to pay it...trust me if you get caught not reporting it you will be way worse off).

Answer 5

Whether you gave back a car by dropping it off, or whether they came to get it and you gave them the keys, makes no difference, it's called a "voluntary repossession". The wrecker company (who works for your loan company as an independent contractor) takes the car, cleans up the car for sale, puts it up for sale (you'd see a notice in the newspaper of how much they were asking for the car). Here the tags stay with the owner when you buy a car or trade a car...so if that's how your state is about tags then you should have called the wrecker company and asked for your tags/plates back and asked them to send you a notice after the car was sold. The notice would be a bill to you....and it would state the amount the car sold for, PLUS the clean-up they did on the car and that total amount would be what you owe the loan company. Then they would put that amount on your credit report, and you'd owe it until it's paid.

If Toyota reported it in 2005 then yes they are expecting that you pay the balance. I don't know whether you moved and they were trying to locate you or if they just misplaced the paperwork, or if collection agencies were sending you bills all this time to another address, or just what the situation was.

It doesn't matter if you don't have the paperwork about the repossession, you still owe it and you can write Toyota and ask them for that paperwork, or write the wrecking company and ask for their sale info and bill as well. If you dispute it with the credit reporting agency, then the credit reporting agency will write them a letter and get a response for you...that way you'd know exactly who you were dealing with and who exactly is dunning you.

In hindsight, what you should have done was taken the balance from that repossession and flipped it over into the purchase of another car ...added the two loans together and that would have stopped it from appearing on your credit report, and could have lowered your payments at that time.

I've worked with a lot of debtors and their debts and never have I heard of any "cancellation of debt" and to me that means nothing where income is concerned. I suggest you re-read that document. And if that is truely what they are saying then check your credit report to see that none of that vol repo is on your report, and if it is then send a copy of the letter you received to all three credit reporting agencies to get it removed.

Answer 6

Your car you returned was sold at an auction for pennies on the dollar. Now you are responsible to pay the difference. The problem is the bank that gave you the original loan also sold the paper to a third party company that bought it at penny's on the dollar. Now they are trying to collect from you the full amount. You need to check if the original bank placed you as a bad payee. If they did you cannot be placed twice, make a deal and pay 25% of the amount. And get a full payout certificate so you can take it to get your credit rating back.

Answer 7

You should of reported this money on your federal income tax return when you filed. If you didn't in time you will receive a letter of "unreported income" and you will have to pay.

Answer 8

Sounds like you'll have to report the debt that was cancelled on your taxes

Answer 9

You aren't being asked to pay it - but you will have to claim the amount on your tax return as taxable income for the year.