Trustee still paying forgiven debt

[dmc-2008]

My chase heloc was forgiven a few months ago but I am still receiving statements, they are the only debt that never stopped sending them monthly. But the deal is the trustee is still making payments. Should I care, does it matter? Thank you!

[switch625]

My trustee was still paying on my forgiven HELOC for a couple months this spring and summer. Then last month, I checked NDC and found that the lender gave back to the Trustee all post-forgiveness $$ it had received. My trustee then redistributed to my other creditors. This happened right after my HELOC creditor filed to withdraw the claim (I got copy in the mail). So maybe the trustee must keep paying on the claim until the claim is withdrawn.

[dmc-2008]

Ok great, I hope its something like that. ;-)

[justbroke]

The real gist of this is "if" the claim is withdrawn. The question is whether the HELOC had a true "claim" as it involves your bankruptcy. There are some legal issues regarding whether something forgiven on a 1099-C (forgiveness of debt) is actually forgiveness or just fulfillment of an IRS requirement.

As for your specific question, dmc-2008, the real issue is that the HELOC had a colorable claim when you filed. The fact that they have forgiven the note may be incidental. Did you also have a lien strip regarding this HELOC?

If you believe the claim should be disallowed, it may be too late for you to protest (object to the claim). If the creditor chooses to withdraw their claim after already receiving distributions because they are/were an "allowed secured creditor", then the Trustee will likely stop paying that creditor.

[dmc-2008]

Hi Just, yes this was supposed to be a strip.

[LadyInTheRed]

Whether you care depends on whether paying that money to unsecured creditors instead of to Chase would result in unsecured claims being paid 100% and allow you to complete your plan early.

Did you receive a letter saying they forgave the debt, a 1099-C or both?

When my car got paid off 4 years into my plan and the trustee started sending payments to unsecured creditors, including payments to CitiMortgage for my HELOC that was being stripped, Citi rejected the first couple of payments. The trustee stopped sending the payments and held the funds. After I completed the plan, the trustee deposited the payments with the court as unclaimed funds to later be claimed by Citi. When I was ready to record the order stripping my lien, I decided to check to make sure that the Deed of Trust referenced in the order was the correct. When I searched recorder records, I noticed that CitiMortgage had already recorded a release. At first I thought that they had taken the initiative of releasing the lien because it had been stripped. But, a couple of weeks later, I got a letter from them saying that they had forgiven the loan. I suspect the timing is not a coincidence. Citibank was part of national mortgage settlement. I believe Chase was too. I think banks may be forgiving discharged loans with stripped liens and using that as credit towards the dollar amounts they agreed to in the settlements.

If Chase really did forgive the debt and you do care (see my first sentence), I suggest you contact your attorney to find out if your plan needs to be modified. One thing to keep in mind is that you could owe income tax on a forgiven loan, but you are exempt from tax if the loan was discharged in BK before it was forgiven. In my case it isn't an issue because Citibank did not forgive anything until after the debt was discharged. I hope that if the lien is forgiven after filing but before the plan is completed, you can still use the bankruptcy to exempt any so called "forgiven" amount as discharged.

[dmc-2008]

Lady you are scaring me! I don't understand all this! This is a debt that was part of the bk and was going to be stripped. Are you saying I have to pay taxes on it?

[dmc-2008]

Because then I obviously care a whole hell of a lot!

[dmc-2008]

I just got a letter no no 1099 but it's not the end of the year yet!

[dmc-2008]

Exception 1: Debts discharged in bankruptcy. If you filed for bankruptcy protection, do not report the canceled debt as income.

Example: John was successfully sued for $500,000. He subsequently filed for bankruptcy and had the $500,000 debt, among other debts, canceled. John does not pay tax on the canceled debt.



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[LadyInTheRed]

I am sorry, dmc-2008, I don't mean to scare you. It is true that you don't have to pay tax on a debt forgiven in bankruptcy. You also don't have to pay tax on forgiven debt if you were insolvent (debt exceeded value of assets) at the time the debt was forgiven. My concern is that if they "forgive" the debt during your Chap 13, it technically is not a discharged debt because it is not discharged until you complete your plan. If you were insolvent before the debt was forgiven, which I suspect you were, it isn't an issue. But, if you were not insolvent, then you may not want to modify your plan to stop the payments to Chase because you want to be able to argue to the IRS if necessary that the debt is being discharged. Modifying your plan is inconsistent with that position.

For me, the value of my home has increase enough since 2010 when I filed, so I may not have been insolvent on the date they forgave my HELOC. Before I confirmed that my HELOC was forgiven after the discharge date, my plan if I got form 1099-C was to attach form 982 to my tax return and check the box saying the debt was discharged in BK. My position would be that because I filed BK before the debt was forgiven, it is not taxable income. I think it is a good argument, but I don't know if the IRS would agree. Chances are I would never find out because my return would have to be audited for it to become an issue. If my debts exceeded my assets on the day immediately prior to the "forgiveness", then I would check the box saying on form 982 saying I was insolvent and not worry about it.

Bottom line is that if you would be in a 100% plan if Chase's claim was withdrawn and could end your plan early, talk to your attorney, and perhaps a CPA, to discuss the best course of action.

[gld2pan]

Our HELOC was through Chase. In December we received notice of satisfaction filed on behalf of Chase and Trustee stopped paying them once received that notice. We have continued to receive statements paper and emails for principle balance from Chase each month. Ran this by our lawyer whom said don't worry it will stop when discharged. Last one we received was here in September. I did call Chase after getting that bill as we were discharged in August. They stated it could take a couple of months to stop. 9/17 they finally filed the reconveyance with our county recorders office. No email or bill from Chase for October as of yet. Our last issue to resolve is having our first show on credit reports. Currently shows as closed. Spoke to Wells Fargo and they sent us a letter stating all 4 reporting agency's have been advised to reflect our payments.

I'd definately ask your lawyer what is up and why trustee is still paying them. Wishing the best for you!!

[dmc-2008]

My heads about to pop! But i emailed my atty and no response yet, so we shall see. I am glad i posted here to make me face it one way or another.

[dmc-2008]

Atty replied no taxes because of lien strip! Good news!

[gld2pan]

That's good news. No info if Trustee will stop paying Chase? If will affect term of your Chap 13?