What is Zombie Debt? How does a 1099-C affect home purchase, what do when you think you've been granted debt forgiveness? How do you clear your name when it comes to your debt being passed from collector to collector. Zombie Debt is a problem when it comes to purchasing a home or applying for credit. Listen to Shawn Yesner explain what is zombie debt, how the IRS and banks view 1099-C's and debt forgiveness.
Zombie Debt What is Zombie Debt? Basically, zombie debt is debt that has been written off or discharged or eliminated. But, because it's been transferred from collection agency to collection agency to collection agency to collection agency, borrowers still get calls trying to collect on that debt. It could be debt that was discharged in a bankruptcy, it can be debt that was settled, it can be debt from a waiver of deficiency from a short sale. It's pretty much any type of debt that starts to get passed from debt collector to debt collector to debt collector and even though the borrower owes no obligation to repay that debt, they still get calls on that debt. One thing that some people bring up immediately, is wait a minute, so let's say in the situation of a mortgage foreclosure a 1099-C is issued, a forgiveness of debt income is issued. That debt is gone, right? The answer is no. That debt is not gone. What the IRS says is that the 1099-C is merely a reporting tool that the bank issues to the borrower and the IRS to say that it is forgiveness of debt income. The 1099-C in and of itself, is not a satisfaction, a waiver, a release it is none of those things, it is merely a reporting tool.