We turned over our vehicle back to the bank. They are are trying to come after us for the full amount (including interest on the full loan). We did get them down to 35% pay off the loan over the next 12 months. But they also gave us the option of the 1099c. The debt showing on our credit report is affecting my husbands security clearence backround check. The $425 per month payment is scary because we live paycheck to paycheck now. I have my own business and I'm able to claim the interest of the vehicle when I file taxes. The backround investigators are just asking for something in writing showing we owe less than the credit report is showing (which would be the 35% settlement offer), or showing the account closed and settled. Would the 1099c option show the account closed and settles on the credit report?

First, its not a good idea to piggyback your question on another thread. This can lead to confusion. So I've moved your question to it's own thread.

Yes, it would show as settled. The 1009C option means the full amount would be listed as taxable income to you for the next tax year.