They are allowed to contact other people, but they are not allowed to discuss the debt with anyone else other than your husband or you(since you are married).

Did you have any of this in writting. That is did your husband send them a certified letter stating that they were not to communicate with anyone else. Did you have the payment arangements in writting? If not there is really no proof other than a you said/they said sort of thing.

However, having them give you a 1099-C may not be the worst thing that could happen. Once they do this they are officially writting off the debt and can not come after you again for it. You will have to pay taxes on the amount but depending on your tax situation this might be a very small percentage based on the settled amount.

How did they get your neighbors, parents and siblings numbers? I guess regardless, I say let them file the 1099C.

From another site:

When the 1099-C is issued to you and to the IRS, you must claim the indicated amount as income in the year the debt was forgiven.

Once you pay the income tax on the forgiven amount, the creditor can not come after the same amount again. The debt is forgiven.

The taxes are surely less than the debt, pay it, and forget about it.

They can't discuss it with a third party-
They can't contact you by phone, if you've asked them to stop-
Unpaid debt is NOT income!