Filing Taxes after Chapter 7

[tz369]

I filed for Chapter 7 last year and got a successful discharge. My question is do I need to file my taxes differently than I did in the prior year?

What about the credit card debt that was discharged?

I made purchases that are deductible for my Independent Contracting business. However, these purchases made with cards that were discharged. How do I account for that? Or do I file and deduct as usual?

[shipo]

If I am not mistaken, credit card debt discharged under a Chapter 7 or Chapter 13 do not qualify for a 1099-C; assuming you do not have one or more 1099-C forms from former creditors, then it is my understanding you file as you would always file. As for what is deductible, my gut tells me the portion of the debt discharged is not deductible. That might be something you need to discuss with an accountant.

[justbroke]

If I am not mistaken, credit card debt discharged under a Chapter 7 or Chapter 13 do not qualify for a 1099-C; assuming you do not have one or more 1099-C forms from former creditors, then it is my understanding you file as you would always file. As for what is deductible, my gut tells me the portion of the debt discharged is not deductible. That might be something you need to discuss with an accountant.

It may be your understanding, but people still receive them. The IRS has a form to exclude certain tax attributes, as they call them, called IRS Form 982. If you receive a 1099-C you just complete the Form 982 and check the box for Title 11 (typically box 1) to indicate that the debt was discharged in a bankruptcy.

So, unless and until you receive a 10990-C, you report your taxes normally. As shipo mentioned, please consult a tax professional regarding deductions of discharged debt.

[shipo]

justbroke, very interesting; this is something which I've researched a fair amount. Maybe my research is faulty, but what I've come away with is 1099-C forms are not sent out following a discharge. Do we have anecdotal reports here of folks who've gotten debt discharged via a bankruptcy and still gotten a 1099-C?

The above said, you are correct in that a form may be sent out following a discharge, then the whole Form 982 thing comes into play, however, I have never heard of anybody needing to do that. Have you?

[justbroke]

Yes. I received one after my Chapter 7 discharge. As I wrote, it could happen. Some creditors are more savvy than others. I also received a 1099-MISC as well that took me a long time fight with the IRS. Such a pain.

The scenario may actually occur when a company canceled debt, you filed bankruptcy, but the debt was already canceled. The bankruptcy will further insure that it is discharged, but the creditor still issues a 1099-C Forgiveness/Cancellation of Debt. That's at least one scenario where it could occur. The other, as I eluded to, is merely a creditor that insists on issuing one (they're either not savvy or just doing a CYA).

Otherwise, the IRS would not have Title 11 as the first reason on the 982 Form. It happens.

[shipo]

Ahhh, cancellation prior to filing, I hadn't considered that scenario. Thanks again for the insight.