I filed my taxes last week at a tax prep service. A simple filing. No problems.

I received a letter in the mail yesterday, a letter from an old creditor and it was a Cancellation of Debt. It said it they were cancelling this old debt and there was ....I think a 1099-C form. And they were sending it to the IRS too.
The debt was 10,000.

Here is what happened....7 or 8 years ago I got an auto loan for a chevy blazer for like 13 grand. I had to quit my job to care for my elderly grandparents and I couldn't make the payments. I had paid only a couple thousand on it. The blazer was repossessed. Then the auto loan company said that even though they took possession of the blazer, that I had to still pay the entire balance of 10 grand in full.

But of course I had no money, I couldn't work, I was caring for my grandparents, but I couldn't pay 10 grand for a car I didn't have anymore.

Well, I figured that eventually it would come off my credit report. I think it was due to come off last year. Well, according to this form...I have to pay taxes on a car from years ago that was repossessed?

Also, since I already filed my taxes with a service will the IRS take the money out of THIS years tax return? I was counting on this money, I had no idea this was gonna happen. I haven't received anything from the IRS yet, just the loan company.

Help! I dont think this is right.

“I received a letter in the mail yesterday, a letter from an old creditor and it was a Cancellation of Debt. It said it they were cancelling this old debt and there was ....I think a 1099-C form. And they were sending it to the IRS too.”=====>correct; financial institutions use IRS Form 1099-C to report debts that they have canceled, written off or forgiven. It's the institution's way of documenting for the IRS the financial loss it has suffered from the unpaid debt, which it will claim as a deduction on its own taxes.

Here is what happened....7 or 8 years ago I got an auto loan for a chevy blazer for like 13 grand. I had to quit my job to care for my elderly grandparents and I couldn't make the payments. I had paid only a couple thousand on it. The blazer was repossessed. Then the auto loan company said that even though they took possession of the blazer, that I had to still pay the entire balance of 10 grand in full. But of course I had no money, I couldn't work, I was caring for my grandparents, but I couldn't pay 10 grand for a car I didn't have anymore.

“Well, I figured that eventually it would come off my credit report. I think it was due to come off last year. Well, according to this form...I have to pay taxes on a car from years ago that was repossessed?”=====> Since the bank forgives the debt, it will report the debt cancellation by sending you and the IRS a form 1099-C. You will need to add that amount to your income on 140 line 21 other income and pay taxes on it. So will owe the IRS taxes on the $10K, not the $10K itself.

“Also, since I already filed my taxes with a service will the IRS take the money out of THIS years tax return? I was counting on this money, I had no idea this was gonna happen. I haven't received anything from the IRS yet, just the loan company.”======>As said above, The forgiven debt on the 1099-C is taxable income to you, so you'll show it on your return and pay tax on it; A 1099-C indicates that your lender has chosen to cancel your debt. Since the cancellation means that you are no longer responsible for paying the debt, the debt is now treated as income. The lender will send a copy of the 1099-C to both you and the IRS. The IRS will adjust your tax return when they receive the 1099-C. However, the 1099-C will increase your tax liability and may cause you to owe additional tax. It is therefore in your best interest to file an amended tax return to add the 1099-C to your income rather than waiting on the IRS to mitigate any penalty and interest charges. You will need to download IRS Form 1040-X from the IRS website or order the form by calling 800-TAX-FORM. Once you've completed the form, attach any amount you owe to your 1040-X and mail it to the IRS processing center. There are some cancellations of debt which are not included as income and therefore require no action from the taxpayer. College graduates who choose to work in certain service industries are eligible to have their student loan debt forgiven. This variety of cancellation of debt is not taxable regardless of whether or not you receive a 1099-C. Some cancellations of debt, such as those covered under title 11 of the bankruptcy code, are not taxable

You will have to pay taxes on the $10k as Wnhough stated, however I don't think this is quite right either, but for a different reason. What doesn't seem kosher to me is the creditor is assigning 100% of the unpaid balance to you, yet they would have resold the vehicle, so their loss wasn't the entire $10k, but some portion of it. It seems to me you should only owe taxes on the unrecoverable portion of the $10k, i.e., $10k less what they sold it for. Think about the other option, what if you sold the vehicle instead of letting it be repossessed, you could have sold it for some amount, paid that to the creditor, and certainly owed less than $10k. For example, if you sold it for $5k and gave that to the creditor, then you'd only have owed them $5k. So I suppose the moral of the story would be not to let someone repossess your car, but rather sell it for whatever you can get and give that to the creditor so you owe them less.

The OP says, QUOTE," The debt was 10,000." NOT portion of it

OK, perhaps I misunderstood his statement "that I had to still pay the entire balance of 10 grand in full" as meaning he owed $10k of the original ~$13k loan. In other words, the value of the recovered asset wasn't factored into the debt reported.