Having a Related Finance Company (RFC) on your Buy Here Pay Here business can provide many advantages. As primarily financial institutions, they also have to adhere to unique requirements that car dealers don’t have. One of these requirements is filling 1099-C (cancellation of debt) for each debtor you whom you cancel a debt owed to you $600.00 or more. Although debts discharged on a bankruptcy are exempted from this requirement, many other instances are not.

One example is when a customer totals a vehicle. You receive an insurance check but it might not cover the entire debt. You may elect not to pursue the collection of the difference but, if the amount is $600.00 or more, that could become a discharge by agreement and would require the 1099-C reporting.

Another good examples would be when you accept a payoff that is less than the balance. Also, if you cease collection efforts in an account, you should also file a 1099-C.

Always consult with your accountant with questions and, when in doubt, file the 1099-C to avoid landing in deep waters on an IRS audit.