Q: Use 1099-C charge-off for settling auto loan before repossession?

A: You're facing a challenging situation with your auto loan. Unfortunately, a 1099-C form isn't something you can use to initiate a settlement - it's actually a tax form lenders issue after they've already forgiven a debt, making the forgiven amount potentially taxable income. Your lender's stance about only discussing settlement after repossession is common, though frustrating when you're trying to be proactive.

Before repossession occurs, you have several options worth exploring. You could attempt to negotiate a loan modification or forbearance plan by demonstrating financial hardship with documentation of your income and expenses. Another approach is selling the vehicle yourself (if the loan terms allow it) which often yields a higher price than auction sales. Voluntary surrender is also an option that might give you slightly better negotiating leverage for the remaining balance compared to forced repossession.

If you're seriously considering bankruptcy, consulting with a bankruptcy attorney before repossession might be beneficial, as the timing can affect your options. Remember that most lenders would rather work with you than go through the expensive repossession process, so being persistent about negotiation could pay off. Your credit union or bank might also offer refinancing options with more manageable terms if your credit still allows it, potentially giving you breathing room to avoid repossession altogether.