Debt Collectors Issuing 1099s May Violate Law
Alabama consumers are receiving more and more 1099s from debt collectors and debt buyers where these collectors are claiming the consumer defaulted on debt and should have to report it as income. There are times when this is appropriate but as we understand the law the 1099 can only be for the principal, not the interest. Most debt buyers have no idea what portion of the debt is principal and what portion is interest. See this article written from the debt buyer industry's perspective.
If you have received a 1099 (normally a 1099-C) then you may want to write to the debt buyer and find out what portion was interest and what portion was principal and how the debt buyer knows this. If the debt buyer is unable or unwilling to provide this information, then this may be a violation of the law. We will monitor this developing area of the law and will report any new ideas or findings.
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