Chapter 7 and Chapter 13 Bankruptcy Questions
I just filed for Chapter 7 or Chapter 13 bankruptcy, why did the bank send me 1099C?
As April 18 deadline approaches, people are reporting that they are receiving “1099 C” forms from their creditors/banks. This last parting “gift” is causing panic throughout the nation. Clients of Georgette Miller Law who just filed their Chapter 7 or Chapter 13 bankruptcy need not worry. Debt discharged through bankruptcy is NOT TAXABLE.
Q. I was told a 1099c form is income that I have to report on my taxes. How can it be that I have “made money” and have to pay income tax even though I just filed a Chapter 7 or Chapter 13 bankruptcy?
A. From the bank’s standpoint, it forgave your debt. Since you don’t owe them money any more and they can write off their loss, the Internal Revenue Service would ordinarily treat the bank’s loss as your gain i.e. income. The bank didn’t want to forgive your debt. They’d rather garnish your bank accounts or make robocalls causing you to lose sleep. You made the bank forgive your debt when you filed your Chapter 7 or Chapter 13 bankruptcy case. A great advantage to filing a Chapter 7 or Chapter 13 bankruptcy is that you almost certainly won’t owe any taxes on account of the 1099C. Here’s what you need to know:
Section 108 of the Internal Revenue Code protects you
You or your accountant will have to fill out a form IRS 982 along with your income tax return. Make sure you look at the February 2011 revision.
Information is available in 2009-37, 2009-36 I.R.B. 309 available with IRS Publication 908.
Cancellation of debt in connection with your residence should be excluded from income until 2012.
Not having to pay taxes – just one more benefit to filing a Chapter 7 or Chapter 13 bankruptcy