Forgiveness of debt

[jenski]

I read in another part of this forum, that if you have a $3K cc bill and the bill is settled for $2K (you pay this), the $1K that is forgiven by the oc is considered as taxable income by the IRS.

does this apply to the debt that is discharged in a bk? seems that would defeat the purpose of filing?????????????

[no_it_all]

No, it does not apply to a debt discharged in bankruptcy....

[CindyLou]

has anyone here ever really received the 1099 for forgiven debt?

[phoenyx]

Forgiveness of debt is generally taxable as income. However, there are times it is excluded as income, such as:

* If the debt was cancelled in a bankruptcy
* If the debt was cancelled when you are insolvant, even if not filing bankruptcy
* Certain circumstances with student loans
* When the cancelled debt would have been deductible, if paid

If the forgiven debt is not declared as income, the forgiven debt amount must reduce the taxpayer's tax attributes, if there are any. Tax attributes are: net operating loss; general business credit carryovers; minimum tax credit; capital losses; property basis; passive activity loss and credit carryovers; and foreign tax credit.

Form 1099-C is supposed to be issued on forgiven debt (either cancelled outright or the lost amount due to settlement) if the amount is more than $600. I believe the form is only required by government agencies and financial institutions, however can be sent by other creditors voluntarily.

I've had debt cancelled from a company that wasn't related to the government, and wasn't a financial institution, and I never received a 1099-C from them.

However, legally, you still "have to" declare the forgiven debt as income whether you receive a 1099-C or not, unless it's excluded by the reasons above.

[NSH]

Hey, I didn't see this thread and just started a thread about this. I am really worried now, because I just got between 68K and 100K of 1099's from Bank of America, who cancelled my debt with them. Note, I am NOT in BK proceedings right now. I think I am insolvent, but not sure if the IRS will see it that way because I don't know what their definition is.

I can tell you I have ZERO balances in all my bank accounts (assuming they still even exist that is) and no assets. I do not own a car or house and I rent. My income for the last three years has hovered around 20 grand, period, and I barely get by with that. How in the hell can the IRS possible expect me to pay taxes on the 20 or so thousand I made this year, PLUS 100K in cancelled debt (and that is assuming no other creditors are sending me 1099's as well!!)?

[dp1969]

Our BK was discharged 3 years ago in april and we just received a 1099--C in the mail. We included EVERYTHING in our BK...2 mortgages and CC debt. Now, this 1099 (box 6) does not show checked for BK. This company who it came from, is Specialized Loan Servicing, LLC. They took over the loan from our mortgage line of credit but appears that they have no record of both loans being files in BK. Do we have to file this for our 2010 taxes? Shows $231256.53 canceled (box 2) and the date cancelled was 12/28/10! We were discharged in 2007! Does someone have something wrong?

[kornellred]

Once you are in bankruptcy, all attempts at collection of debt are nullified by the automatic stay. Once a bankruptcy is complete, the debtor is free of all discharged debts. A creditor cannot forgive a debt that is included in a bankruptcy, even if they made no claim during the waiting period. If a debt is forgiven prior to filing for bankruptcy, there is no debt and the creditor cannot be included in the filing. Then, that debt becomes income and you are required to pay taxes. The IRS cannot force you to pay taxes if you have no money to pay the taxes with. They can, and often do if the amount is significant, use whatever means they can to collect as much as possible.

[dp1969]

Once you are in bankruptcy, all attempts at collection of debt are nullified by the automatic stay. Once a bankruptcy is complete, the debtor is free of all discharged debts. A creditor cannot forgive a debt that is included in a bankruptcy, even if they made no claim during the waiting period. If a debt is forgiven prior to filing for bankruptcy, there is no debt and the creditor cannot be included in the filing. Then, that debt becomes income and you are required to pay taxes. The IRS cannot force you to pay taxes if you have no money to pay the taxes with. They can, and often do if the amount is significant, use whatever means they can to collect as much as possible.

The debt was canceled in a BK. Here's the advise from my lawyer.

"Just tell your accountant to file the 982 form and attach the discharge. I don't know whether you file a corrected 1099-C or not. Your accountant should know.
There should be no problem since the BK was before the foreclosure which was on 12/28/2010 according to the 1099-C.

We notified Greenpoint in the BK which I guess was servicing the loan for GMAC. SLS should have known of the BK from Greenpoint. We did all that we needed to do and couldn't very well have sent it to the assignee when it wasn't yet assigned. But, the important point is that there is no problem if your accountant files the 982 and states that you got a discharge. If the accountant has any questions, just refer him/her. "

Therefore, we shouldn't be held accountable. Even our 1st lien holder didn't send the 1099.