Bank Cannot Issue 1099-C And Subsequently Try To Collect

So the rule is that the financial institution should send you a 1099-C, which will prompt you to report income and pay tax on it, even though the institution might decide to chase you for the debt in the future. The Reeds were upside down on a property that was foreclosed by the First Tennessee Bank. The property had a fair market value of $262,500 and a loan balance of $267,574.18 so Form 1099-C was issued in the amount of $5,074.18. Then on April 8, 2011 the Bank filed a lawsuit to collect the $5,074.18, which had grown to $12,075.17 with interest and attorney fees.''