Will you sadly owe income taxes after bankruptcy when creditor reports you to IRS with a Form 1099?
During “tax season” we see questions asked over and over about whether a person who has filed bankruptcy and received a 1099c form will owe taxes as a result of that form being sent to the IRS by a creditor who was listed in clients bankruptcy case. Almost always: NO. Most importantly, absent situations involving a reaffirmation in bankruptcy and later foreclosure on the same secured asset, you will OWE NO MONEY: IT IS NOT A TAXABLE EVENT. What should you do if you receive such a form? Provide the 1099 C to your tax preparer. The cancellation of debt is not a taxable event if the cancellation is due to discharge in bankruptcy (absent reaffirmation) If you received a discharge of the mortgage or other debt in your Chapter 7 bankruptcy , your personal liability for the debt is in fact discharged and you will not be taxed on the 1099 C. Your tax preparer (or you) will need to fill out form 982 which will tell the IRS that your obligation was discharged in bankruptcy. If you do not have one, you might seek from the IRS Form 982 and explain why it is not taxable income. Line 1(a) is a bankruptcy discharge, and line 2 is the amount from the 1099. Thus, no taxes due! Good luck and I hope this information provides you relief from any stress you might have felt when you read that notice. (If you ever need professional tax advice, Tax Attorney Ken Weil has provided my clients advice and answers to tax questions since 1990: his website is email@example.com).