The Creditor Already Wrote Off Your Debt — Here's How to Prove It

Added: 2026-05-31

[00:00:00]A lot of you guys pulled your IRS transcript. [music] You watched the debt discharge video.

[00:00:05]You went to the IRS.gov.

[00:00:07]You pulled your wage and income transcript, and you searched for a 1099-C. You found nothing, and you thought, "Okay, the debt wasn't canceled. The creditor didn't write it off. The process doesn't apply to me."

[00:00:20]But, I need to hear to hear this clearly. An empty transcript does not mean the debt was never written off.

[00:00:28]It just means the creditor chose a different path. One that doesn't show up on the IRS transcript. One that produces the same economic result. Your debt gone from their books, but it leaves you with no documentation of it. And one that debt collectors are counting on you never finding out about.

[00:00:46]And it's called section 166.

[00:00:49]The bad debt deduction. And here's what it means in plain terms.

[00:00:54]When a creditor decides a debt is uncollectible, they have two options.

[00:00:59]Option number one is file a 1099-C. Any debt over 600, they can file a 1099-C, and they can report that debt as income to you. And then, they'll close the account. Option two is to take a bad debt deduction under IRC section 166.

[00:01:17]Write off the debt on their own taxes as a business loss, and then sell it. When they choose option two, no 1099-C gets filed. Okay? Nothing shows up on your transcript, [music] and the debt is sold to a collection agency for pennies on the dollar, who then calls you as if the full obligation is intact, as if the original creditor still has a claim, as if nothing happens.

[00:01:41]This is probably what happens to most people. If you have a collection on your credit report, but no charge-off to connect it to it, they probably wrote it off as bad debt. But, something did happen. The creditor already wrote your debt off their books.

[00:01:55]Already told the IRS through their own filing that this debt has no economic value and now a third party is trying to collect on something the original creditor already treated as worthless.

[00:02:07]Today, we're going to find out if that happened to you and if we build a documented position that follows it, will you listen to this all the way through? [music] Now, let me tell you what the last video said and what this video is going to add.

[00:02:23]The debt discharge blueprint covered the 1099-C and when a creditor files it, your debt is legally canceled.

[00:02:31]You can find that on your IRS wage and income transcript and you can use it as a documented evidence to challenge a collection. Let's repeat that one more time. The fact that you can use a canceled debt that you can find on a wage and income transcript that you can get for free from the IRS, you can use as an ability to challenge a debt collector.

[00:02:55]That is real, that is documented and that's written in the tax code, okay?

[00:02:59]And if you found the 1099-C on your transcript, that video gave you exactly what you need. But then, I wanted to go back and somebody left a comment, okay?

[00:03:09]And they said, "App, shout out to Mike Lowe the great 925. They often take bad debt deduction under IRC section 166 [music] instead of filing a 1099-C on your IRS transcript."

[00:03:22]And the thing is is that that comment is very correct and I'm glad that you caught that, Mike, because this is something that is happening to a lot of people, okay? So, we have to address that right away and that's what [music] this video is for. It explains the frustration that most people have in this community.

[00:03:42]Why did I pull my transcript and find nothing? Why is there no 1099-C event even though this debt is years old? Why is a collector calling me about a debt that I know the original creditor's stopped pursuing. The answer in most cases is that IRS section 166. [music] The fact that the that the creditor chose the write-off path that doesn't create documentation in your name.

[00:04:05]They took the business deduction, they sold the debt, and then they moved on.

[00:04:09]And the collector who bought it is collecting on something that the original creditor already treated as a loss and already has been deducted. But here's where it gets real.

[00:04:19]When a creditor takes an IRC 166 deduction and then sells the debt to a collector and that collector pursues you for the full original balance, there is a documented argument that the collector is attempting to collect on an obligation that has already been economically resolved on the creditor side.

[00:04:37]That is not a sovereignty argument. That is a documented position grounded in tax law and the FDCPA.

[00:04:44]>> [music] >> And today we build it. Today we're going to make it make sense. All right? Now, but before we go deeper, two things I want to highlight.

[00:04:54]First, the IRC section 166 is a real tax code provision. It allows businesses to deduct worthless debts as business losses. This is documented in the Internal Revenue Code. This is not a theory.

[00:05:10]Number two, the documented position we are building today is not a magic bullet.

[00:05:15]It's a framework grounded in tax law and consumer protection law. That changes your position in a debt collection situation when you can document that the original creditor took this path.

[00:05:28]As always, if you're in an active legal matter, do not stop at this video.

[00:05:33]Consult a consumer protection attorney.

[00:05:36]You can go to NACA.net which has attorneys who specialize exactly in this.

[00:05:42]What we are building today is the knowledge that gives you the foundation and the operator moves that follow. So, thank y'all for watching this video.

[00:05:51]Once again, this is not a magic bullet that will solve all your problems. But, like I said, the whole point of debt discharge, the whole point of even doing this is to hold debt collectors accountable, exercise your right, get clarification, and be able to put yourself in a better position financially. All right? So, thank y'all for watching. I'm super excited to talk about this topic.

[00:06:13]Let's dive into another one. So, the first thing that >> [clears throat] >> I'm going to talk about is the documented realities of debts that are charged off, debts that are deducted, debts that they still come after you for that they've been made whole. And one of the things that I typically that I started to talk about early in my content is the element of unjust enrichment. Being making money off of something that they've already gotten paid on. Now, where we messed up at was believing that unjust enrichment just stops at the element of the money creation. Oh, we gave them a value of a promissory note. They got paid off that promissory note, and they're forcing us to pay. So, that's where the unjust enrichment is.

[00:06:55]But, the unjust enrichment comes when they deduct your debt, or when they charge off their debt, they are made whole, and then a second collector comes and typically tries to collect on the debt. That's typically where the unjust enrichment comes. All right? Better argument for a third-party debt collector.

[00:07:13]So, what I really want to highlight is for the people who have are in this type of situation. And so, there's three layers between that. Number one, we got the IRC section 1166.

[00:07:24]I don't know if I was saying 116, but 166. Okay? This doesn't show up on your transcript. Then, we're going to talk about the 1099-C and how to be able to overcome that. I talked about this in my last video to discharge debt. And then after that, we're going to talk about another machine that nobody talks about, which is zombie debt. All right? So, let's start off in layer one, section 166. The path that doesn't show up on your transcript. Number one, we want to build this from the ground up. So, when a creditor, a credit card company, a bank, a medical provider decides that a debt is uncollectible, they have to do something with it on their books. They can't just leave it sitting there as an asset forever. So, the IRS gives them two documented ways to handle it. Path one is a 1099-C, and you already know this one. They file a form with the IRS reporting the canceled debt as income to you. You get a copy. It shows up on your wage and income transcript. Path two is IRC section 166. The creditor files their own tax return, claims the debt as worthless business debt, and takes a deduction for the full amount as a business loss. No form goes to you.

[00:08:40]Nothing shows up on the transcript, and the creditor gets the tax benefit. And the debt, which they have now declared as worthless on their tax filing, gets packaged and sold.

[00:08:51]Now, read that again.

[00:08:53]The creditor declared the debt as worthless to the IRS, then they sold it to a collector who is now telling you you owe the full original balance.

[00:09:04]That's a walking contradiction in itself. If it is worthless to you, why sell it someone First of all, you It was worthless so worthless that you sold it for cheaper.

[00:09:15]So, if the person that is who created the value in the first place says it is worthless, and then you sell it, and then somebody else comes to extract that value that they've already deemed as worthless, that doesn't make sense. Why would the story change? Okay? So, a couple things I want to expand on is the fact that the IRS section 166 specifically covers business bad debts.

[00:09:42]Now, this is perfect for the people who, you know, do their own taxes and this that and the third. This is good knowledge for you. All right?

[00:09:50]But debts created in connection with a trade or business, consumer debt qualifies when originated by financial institution. The deduction can only be taken when the debt is genuinely worthless. The creditor must establish that there is no reasonable expectation for recovery. So, when they do the IRC section 166, they are essentially saying there is no reasonable expectation of recovery.

[00:10:14]So again, so what makes a debt collector think agency think that it would be easier if they do it?

[00:10:20]Okay? Once the deduction is taken, the creditor has received their tax benefit.

[00:10:25]The debt is off their books, their economic interest in the obligation is resolved.

[00:10:31]Is that clear? If they don't have any economic interest in it, then the obligation is resolved. The sale of a debt to a third-party debt collector typically happens for pennies on the dollar, 3 to 10 cents for every dollar of face value, which reflects the actual market value of the obligation. So, once it's deduced, the market value of what you owe drops once it is charged off and once it is deducted. So, you should never think that you are the one that has to still, even after all of this. If you spent all this time not paying it, what is more important to them is them getting something.

[00:11:11]Okay? So, if the economic value was already dropped, you can use that from a negotiation position.

[00:11:16]So, the creditor told the IRS this debt was worthless, the collector is telling you it's worth every penny of the original balance. Those two positions cannot both be true. And this is something that, obviously, in the context of logic is going to make sense in law, okay? Some people say, "Well, I say this and they It's your argument.

[00:11:37]Your argument is not good at all, okay?"

[00:11:39]So, just to talk about the IRC section 166. So, boom. We can look at There's two paths, right? Two paths. All right.

[00:11:49]We got path A and then we got path B, okay? Path A and path B. All right.

[00:11:57]So, path A typically is the 1099-C, which is the charge-off. Do you think I can adjust the pin size? Mhm. And then we got the IRC 166, okay? So, obviously on path 1099-C, they cancel the debt. Technically, you know, in the eyes, this can look like an element of forgiveness, okay? You have a strong documented position using a 1099-C versus Actually, let's go back.

[00:12:31]I'm not going to use this diagram right now, okay?

[00:12:34]I just wanted to use my uh pen. But, you got two paths. You got the path A path B, all right? But, both of them lead to the same economic results, okay? If the creditor cancels the debt, files a 1099-C with the IRS, you receive a copy, the debt shows on your wage and income transcript, the debt is legally canceled, the collector pursues it, and it's collecting on a documented cancellation.

[00:12:57]That is your strongest documented position. But, then if we talk about B, the creditor declares debt worthless, takes business loss deduction on their own tax return, no form is sent to you, nothing on your transcript, debt sold to the collector, the collector pursues full original balance, you have no documentation but the economic reality is the same, okay? One path actually produces documentation. The other doesn't, okay? This one's going to produce docs, no docs. Path B is a contradiction, okay? This one is forgiveness in a way, okay? So, the thing is is that both of them are the same economic reality, economic result. It just have to be you have to build a documented position through a different process, okay? So, whether they file a 1099-C, whether you have record of it or not, but you know a debt to be canceled off, gives you a high strong documented position, okay?

[00:13:57]So, thank y'all for allowing me to have a little bit of fun with that. But, let's talk about the next thing that nobody talks about, which is zombie debt, okay? And I want to give you the full picture of what zombie debt typically looks like, all right?

[00:14:10]Because understanding the machine is what gives you the position. So, how written-off debt typically gets sold and recollected. Number one, you fall behind. The credit card, the medical bill, and the personal loan. You fall behind. After that, the creditor then charges it off. Chase, Bank of America, a hospital, whoever, tries to collect internally for a period usually about 90 to about 180 days, okay? So, after 90 and 180 days, they typically are going to file a 1099-C or they're going to take a a deduction, okay? Step three, after they charge it off, they either file it and then the debt then the next one they sell off the debt, okay? They package it, all right? Sell it at 3 to 10 cents per dollar.

[00:14:59]Number four, they sold they sell it again and again and again, okay? Typically, the debt buyer tries to buy it three to four or five times, all right? So, and then the collector calls you and then now it's time to force the operator to move. But, the key distinction of what's happening is like after they have sold it multiple times, after one makes money off of another, they charge it off and all of this. They then come after you for a debt. This debt does not have to be paid. I think that's the main thing that I want to highlight, you know, beyond the beyond the private citizen thinking and everything. Once your debt gets to this point, it does not have to be paid.

[00:15:41]Now, are you going to get negatives on your credit report? Yes. Are you going to get a charge off? Yes.

[00:15:47]Is there the Fair Credit Reporting Act so that you can personally uh you know, I forgot my point. Show does not hurt in. The point is is that that when you look at this, debt buying is an industry. So, given the fact this an industry, it's a for-profit industry. It can it has its flaws and it's regulated, okay? All you have to do is be willing to challenge it and be willing to regulate it, okay? A lot of debt portfolios are sold in bulk, so they don't have all of that information. They don't have all the individual documentation. They don't typically answer all the FDCPA validation requests because so many people are doing it.

[00:16:30]Also, that little bit of money that they lost on that typically is they're not really tripping off of that.

[00:16:37]Um also, got a question from and I'm going to pull it up, but uh Lisa baby.

[00:16:43]Let me see where Lisa see if I can find Lisa's baby comment, okay? Lisa on the video said, "How many times can your debt be sold to debt collectors? The debt should not be sold, period, because if the debt is written off on taxes, it's a write-off. If your debt is written off on taxes, then that debt should be paid, just my thinking." And Lisa's absolutely right, okay? So, as many [clears throat] times as a buyer will pay for it, each sale does not each time I mean, again, as many times as somebody will buy the debt, okay? If it's still worth uh They're worth something in the eyes of the debt collector, they know okay buying it.

[00:17:18]Okay? But, even though it gets sold, it doesn't like restore the validity of the underlying obligation. If anything, it just changes who is trying to collect it. If anything, it just loses even more integrity. All right? So, it's a big thing that they're selling down zombie debt. It's a big thing that they do this, and this is such a very easy case for unjust enrichment framework. Okay?

[00:17:44]This is not a theory, this is a documented legal argument. Something I've been talking about from the beginning. Because if a creditor takes out a IRC 166 deduction, receives a tax benefit equal to the value of the debt, the IRS is going to compensate them for that economic loss. So, if they get compensated, that's number one, they've been made whole. Then, they're going to sell it for pennies on the dollar, that sale price is going to reflect that actual market value, which is a fraction of the original balance. So, they're going to make money, they're going to get money from the IRS, then they're going to sell it for cheaper, lower market value, that collector is going to attempt to collect a full balance even though the market value was lowered, and present the obligation as if they never the IRS never compensated their original creditor.

[00:18:28]The argument is that one party already received the economic compensation for this obligation, and a second party paid minimum consideration for a already resolved claim. Collecting full value constitutes unjust enrichment. Combined with chain of ownership gaps, validation request failures, CFPB regulatory records, this is the foundation of a consumer protection attorney advance.

[00:18:49]So, if you take these steps, if you challenge them, you can use zombie debt to or this is just this this this is how you are able to beat collections. This is how you're able to beat any debts that are made whole. So, for the people that are in the comments and say, "Well, they do this, and they do that, and they never accept that argument." Have you ever like took them through these steps here? Understood these steps, why they got in that position, build documentation, then come up with the argument. Okay? So, real quick, if you pulled your transcript and found nothing, and now you understand why, then find yourself family zone school where we build a documented position together. The IRC 166 research, the chain of ownership analysis, the validation letters, the CFPB complaints, all of it from start to finish. The link is in the description. Come on in. Now, here's what operators do when they discover this situation. And the key thing that I want you guys to take your notebook and notepad, >> [music] >> because this is probably going to be the most important part of the video.

[00:19:48]We're going to go through this relatively quickly so that we can kind of just get to the nitty-gritty. All right? So, right now, I have six moves that y'all need you guys to pay attention to. Okay? Straight up. Take a picture of this right now. So, there's no excuse. Oh, you never told us anything. No, it's right here. All right, bet. Number one, pull your IRS wage and income transcript. And income transcript. Okay? Number two, send that debt validation request.

[00:20:13]Number three, research the original creditor's charge off.

[00:20:17]Number four, file the CFPB and state attorney general complaints. Number five, build the unjust enrichment position. Number six, involve a consumer protection attorney. Take a picture.

[00:20:29]All right? So, straight up, the first two moves that you're going to want to run simultaneously is you want to pull your IRS transcript, okay? You can go to the IRS.gov, get your transcript, get transcript wage and income. Search every year the debt was active, find a 1099-C, which is the strongest documented position. If you find nothing, check the IRC 166 path and build from here. Also, pull an account transcript, additional records, document the research, date and what you found. Okay? The transcript pull is step one. What you find or don't find tells you what path you're on.

[00:21:05]Number two, you want to do a validation request. This is so key and I typically tell people that if you're going to argue that your first step should always be number one, get the info, but then your next step would be to make sure that they validate their claim.

[00:21:18]You're innocent until proven guilty. So, if someone says that you're guilty, you challenge on what premise am I guilty on? Okay? We see that in all these type of movies, all these lawyer movies and all of that.

[00:21:30]So, typically, the best thing to do when you are challenging a debt collector is hit real verse in the FDCPA. 15 USC 1692G is literally the debt validation statute. And it's best to send a letter to the collection agency within the first 30 days, certified mail. Okay?

[00:21:50]What you are demanding in context of the IRC 166 is the original creditor's name and address, their original account number, complete chain of ownership and documentation, the amount paid for for the debt at each transfer, and any documentation related to the charge off the original account. All of this is critical. Okay?

[00:22:12]They cannot say that we don't have to show you this. The chain of ownership demand is critical.

[00:22:18]If the collector bought this debt through multiple resales, they must document each transfer. Many collectors cannot produce this documentation and the paper trail gets lost between multiple sales. If they cannot validate, collection must cease. And 15 USC 1692G is your documented right.

[00:22:38]You are not asking if they can prove you owe it, you're asking them to prove the entire chain of what they actually bought and what it was worth when they bought it. Because at the end of the day, listen, you demand you can prove I owe XYZ by showing me a contract, but let me see how much you paid and I'll pay you that. Okay? Move number three, research the original creditor charge off. Your original credit agreement, account statements, and any correspondence from the original creditor may contain documentation of the charge off date and your reports, 10K filings from publicly traded creditors, all available on the sec.gov.

[00:23:17]Credit reports, date of charge off is typically listed. This is the date the original creditor removed the debt from their active receivables.

[00:23:24]The charge off date combined with the sale of documentation tells you the timeline when the debt left the original creditor's books, what they represented about its value at the time.

[00:23:35]The charge off date is on your credit report and the original creditor's tax treatment of that charge off is what you're building towards.

[00:23:43]The research is so important because you can scream at the fences and say, "Oh, charge off this, that, and the third, unjust enrichment." But when you pull up to court with organized research, showing as much documentation of it being charged off, showing them definitions of I mean, they should know what a definition of a charge off is, but even dropping that knowledge that they've been made whole, that you have records of the charge off, that not only did they that you have your own record of charge off, but they failed to give it to you as a requirement of the law, okay? And then, they sold it for pennies on the dollar and then a this company here is trying to collect on it, okay?

[00:24:18]Typically after a charge off, that credit card company is not collecting on a debt and this is why you have such a strong position. Your next move is to include any regulatory agencies, okay? consumerfinance.gov complaint is completely free. You can include documentation of the charge off date, chain of transfers, and a IRC 166 transfer, okay? Note, the collector cannot produce a chain of ownership documentation gives you more leverage, okay? Specifically note that the original creditor sold this at a fraction of face value and the collector is unable to produce any type of documentation that they should cease collection. You also want to do this with the state attorney general simultaneously.

[00:25:05]If you have two regulatory records, the collector now has agencies asking questions, which will push them to make a different move and and treat you differently. The next thing I want to talk about is the unjust enrichment argument. Okay, that typically should come after the validation of debt.

[00:25:22]Typically should come after you've done your research and all of these things.

[00:25:26]Okay? This is the full documented legal argument that connects everything we just built. When a creditor takes a IRC section 166 deduction, they have received a tax benefit equal to the value of the debt. The IRS has compensated them through a reduced tax liability for the economic loss of that debt. When a debt is sold to a collector and a collector attempts to collect the full balance from you, there is a documented argument that the collector is attempting to collect on an obligation where economic interest already been resolved. The creditor got their money from the IRS, the collector paid pennies for the right to collect, and the collector is trying to extract the full value from you.

[00:26:07]This is a documented case for unjust enrichment. This is not a theory, the documented legal argument. So, unjust enrichment requires showing that one party received a benefit at another's expense without a legal basis.

[00:26:23]If you look at the IRC section 166 framework, this creates a documented argument that the economic benefit has already received. You got me? So, that's the evidence you'll need for unjust enrichment argument. This argument is also the most powerful when it's combined with those documented chain of ownership gaps, with the validation attempts, the inability to produce the original credit credit agreement, and things in that nature. Now, if you are able to connect with a consumer protection attorney that understands both the tax law, both the FDCPA. They are one of the right resources for pursuing this argument formally. Now, you can do pro se, but I will tell you that always, if you're planning to go unjust enrichment and you're planning to go for like federal numbers, you definitely want to include an attorney.

[00:27:11]This is not an argument you just make in a letter alone. It is the foundation of a legal position that an attorney can advance. Your documentation will build the case. So, your sole responsibility, if you're dealing with a debt collector, is to build documentation, as much documentation that stacks that stacks you ahead of them, okay? Because if the IRS says the debt is worthless and they're still coming after you for debt, yeah, that's a walking contradiction.

[00:27:36]Okay? And then, we dive into knowing when to involve an attorney.

[00:27:41]Okay? You can go to naca.net, a consumer protection attorney directory.

[00:27:46]All right?

[00:27:47]If a collector is actively pursuing you, calls, letters, or lawsuit, the IRS 166 framework combined with the validation request to a collector cannot to request the collector cannot answer is exactly the fact pattern consumer protection attorneys take on a condition contingency basis. It's no upfront cost.

[00:28:06]They typically get paid from the recovery. Sometimes a lot, you know, but hey, if you can get a debt collector off your back, perfect.

[00:28:13]The documentation you build is what they work from. If a lawsuit is filed against you, these are your affirmative defenses. But, what I want to highlight is don't go to an attorney right away.

[00:28:22]Build your documentation first. Actually win, you know, privately. Win privately, then go to an attorney and say, "Hey, I've done everything I can do. Boom, here's my documentation." Do not deviate from this unless and unless you consult me, okay? Cuz some attorneys will take your money and they're not This is why it's better to get attorneys that get paid after the recovery because they're going to do everything in their power to win versus some attorneys who are just going to do just enough. Okay? So, most people who have pulled the IRS transcript found nothing and gave up.

[00:28:54]They assumed the system didn't apply to them, that the 1099-C was the only path, that the empty transcript meant an empty case.

[00:29:03]What they didn't know is that a creditor may have already written off that debt.

[00:29:07]Just through a path that doesn't leave a paper trail in your name.

[00:29:11]IRS section 166, the debt the bad debt deduction the is the creditor's way of telling the IRS the debt is worthless without telling you.

[00:29:20]And then selling it to a collector who is telling you it's worth every penny of the original balance.

[00:29:26]Here's what operators know that consumers don't.

[00:29:31]The transcript pull is not the end of the research, it's the beginning. The validation request is not just if you owe the debt, it's demanding the collector prove the entire chain of what they actually bought. The CFPB P- The CFPB complaint is not a Hail Mary, it's actual it's an actual regulatory record that you can use as documentation. The unjust enrichment argument, when the creditor has already received the benefit from taxes, is not a theory, is a legitimate documented legal position.

[00:30:02]Okay? So, if you pull the transcript, found nothing, they're not sending you whatever documentation you need, this is we already cut we covered how you find it, we covered how you fight against it, we covered next steps after that, what they do if they do and don't respond.

[00:30:17]So, everything that I said has real document and moves, all grounded in real law, and they actually produce real results when you know how to use it. So, now you know, move accordingly.

[00:30:30]So, if you want to build this position, specifically, not just understand it, but actually build it, the the FundYourself family is exactly where we do it together.

[00:30:42]Whether you do the IRS transcript pull, whether you're going to use validation letters, whether you're going to do the CFPB complaints, whether you're looking to fix your credit and understand unjust enrichment frameworks, whether you just need a referral to an attorney, you can come to the Fund Yourself family.

[00:30:58]The link is in the description. It's on school. And the link to the debt discharge blueprint will also be in the description, too, if you haven't watched that one as well. Watch both because they build on each other.

[00:31:10]The creditor already wrote it off.

[00:31:12]Now you know how to use that. Understand the system. Beat the system.

[00:31:17]And Fund Yourself. I'm BizNasty himself, and I'll see you on the other side. Ah!