A 1099-C is actually a deceiving document. It is titled "Cancellation of Debt," but the fact is, unfortunately, a 1099-C often does not mean that the underlying debt is forgiven and no longer owed.
When a creditor decides that a debt cannot be collected, or if the creditor settles the debt for less than the amount owed, then the creditor "cancels" or "writes off" the debt, or part of the debt, from its own books. The creditor then gets a tax benefit for that. The IRS requires that the creditor who writes of the debt must send a 1099-C to the IRS and to the debtor. The debtor then is required to count that debt reduction as income, and the debtor may owe taxes on that income.
However, the underlying debt is not necessarily canceled. The creditor can come back and try to collect the debt.
If that happens, then the tax consequences may need to be reversed. But that is a separate issue.
Here is a link to a blog post I wrote about this about a week ago:
I recommend that you contact a CPA or a California attorney and discuss your options. I don't have all the facts so I am not able to give you legal advice specific to you situation. My comments are intended just to point you in the direction of some of the right questions to ask. But I can say that the 1099-C does not necessarily mean that the underlying debt is forgiven and no longer owed.
If the amount is under $7500, you can probably file your request for a refund in small claims court. A 1099-C means that they are no longer entitled to collect the debt and they should not have been paid any funds, so you should be allowed that money back.