CHARGE OFF/IRS implications/attorney

[scubaman]

I have just talked to my Attorney 2 times in 6 months for a total of ten minutes (and she was abrasive), but to the point she said that if I have charge offs on my credit report that this will be considered income and I will be taxed on it. She said that my CPA would no what forms to use to let the IRS know that these accounts were part of a BK7 (which we are filing next week). The main reason for the BK is back taxes so I'm just so DEPRESSED
Now I'm being treated for a mild depression with celexa and wellbutron. What a mess. And I hate pills. I feel like a total geek. I'm an easy going guy and I just want my Attorney to know that the reason I needed some kind of explanation is because the paralegal gave me the forms that they will file to proof and he had missed 4 large accounts. I caught the errors so this was a good thing. So I have done everything the Attorney has told me to do so I feel like I need to say something becuase she seemed to say we have been waiting for you! I said I have been sending you emails with questions/requested documents etc and I have not got one answer back.

Is this the way this is and I should just let it go and file and hope this thing works out and move on (with reviewing everything before filing) and not
say anything?

I appreciate you all and don't mean to ramble but 1 year ago I was independent and now I'm having to answer to people like an 11 year old.

Thanks for listening.

[JRScott]

Sorry to hear mate, I don't know the answer, but I'm sure someone does here. .

If the taxes are less than 3 years old though I don't think they can be discharged in a Chapter 7.

I do know that if they settle with you that the CC companies send you a 1099 on the forgiven amount if its above a certain threshold. You then are suppose to pay taxes on that amount.

[scubaman]

Hi JRScott
Thanks for the note. Well I have about 100,000 in CC and loan debt. but because of the bk7 the taxes on this amount should not be an issue (i hope). I know the tax laws with the new BK so thats not an issue. I think it is just surrendering and trusting this process I just want it to be complete and no skeletons to come back later to haunt me.
This is a big life change for me personally and I guess that I need to be aware of that. The Attorney probably deals with people that are rude and unfriendly. I have been very patient and I just want my serenity back. Again thank you.
ps. I have a very good friend who lives in Durham.

[HHM]

I guess I am not clear, have you filed BK, or not.

In any event, chargeoffs, by them self, are NOT counted as income for IRS purposes. A chargeoff on your credit report simply means the debt has been in default for 6 months and the creditor is required to report the debt as a loss for accounting purposes. The debt, at that point, is typically sold to a debt buyer or assigned to a collection agency. Only "forgiven" debt is treated as income by the IRS. Forgiven debt mean the creditor is surrendering their legal right to collect the debt and is extinguishing it.

[scubaman]

Thanks HHM, nope no yet my atty is planning on filing 10/17. Thanks for the information regarding the charge offs.