Foreclosure Tales: We were foreclosed April 2015. Received 1099-C. Can they still come after us for deficiency? Chase serviced the mortgage.

Another story of despair from the Interwebz…

At the public auction the lender bought back the property for $3500. WAY BELOW FAIR MARKET VALUE. They sold the house in real estate Oct. 2015. We later received a 1099-C in Feb. 2016. Around March 2016 we received a letter from Dyck O’Neal stating they were collecting on the deficiency of $40,000. Can this happen? I read where a TN bankruptcy court ruled that when you receive the 1099-C that is evidence the lender discharged the deficiency. Dyck O’Neal is telling us we can settle for $3500 or do a $10,000 note, 5% interest, 130 payments of $98. They also stated over the phone they would come after us for a court judgement for the deficiency if we didn’t propose a settlement or payment plan. On our credit report it says Account Balance $0 and remarks says Foreclosure Redeemed under Chase. Dyck O’Neal is also now showing on our credit report and it lists Chase as the original creditor. How should I handle this??