What is the name of your state? California

Is their any one out there that knows first of all what is insolvency? I had a car repossed in 2002 I owed $13,000 the car's anti-lock breaks locked up on me and caused me to have an accident I was so angry because since I had bought the van it gave me nothing but trouble so I called the finance company and told them to take it. The finance co. sold it at an auction for $1,200 and wanted to charge me $14,000 I rfused to pay that amount so we finaly reached a settlement of $3600 cash payment to eliminate this debt. Now I recived a letter from IRS saying I owe them money because I failed to file a 1099 that of wich I never recieved and did not know I had to file. Is the IRS correct is this possible also is there any law that would release me from this debt such as hard-ship?

Desperate