At TheLaw.com, a person wrote in because they just received a $900 plus interest bill from the IRS. In 1995, the RV burned to the ground. Rather than let the person make payments, the company wanted the loan paid in full. The owner declared bankruptcy. The company did not submit paperwork to be included in the bankruptcy settlement. Recently the owner received a letter saying the company was going to write off the RV, and then, two weeks later, a letter from the IRS stating he had not declared all his income for the previous year. The IRS considered the $7,000 the company wrote off as income!
The answer from TheLaw.com was that yes, this is legal. "They sent a 1099 stating they lost out on the 7k$ they would have received from you and since you did not pay for it, it becomes extra income for you during the year."
I certainly did not know things worked this way and that not paying a debt could be counted as income if the company that loaned you money wrote it off. If you do have problems making payments - on an RV or other property of value - be careful how you dispose of the property and don't just stop paying. It could come back to bite you. Jaimie Hall Bruzenak
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