1099-c

[AvisNovak]

I was under the impression that filing bankruptcy protected you from having to report the discharged debt as income. Are companies allowed to send you a 1099-C on that debt and are you required to report it on your taxes as income? Also, why would some companies send you one and not others?

[justbroke]

While bankruptcy is a reason to reduce your tax liabilities, it doesn't, in and of itself, remove the responsibility to report discharged debt that comes on IRS Form 1099-A/C. Companies will still send you a 1099-A/C Forgiveness of Debt.

What the bankruptcy does do is allow you to check Box 1 on the IRS Form 982. That's the special form which reduces your tax attributes (and liabilities). I believe the first box has the words "Title 11" and that's what you would check.

So, to answer specifically; yes companies may send an IRS 1099-A/C, and yes you must report this on your taxes. However, you would look to Form 982's instructions on exactly what you need to do to reduce your tax liability due to a bankruptcy discharge.

If you are unsure, please seek help from a qualified tax specialist or accountant who should know about Form 982.

[AvisNovak]

Thank you! That helps a lot.

[shipo]

So, to answer specifically; yes companies must send an IRS 1099-A/C, and yes you must report this on your taxes.

Hmmm, I was under the impression sending out a 1099-C was optional for creditors once a bankruptcy had been successfully Discharged. My wife filed for a Chapter 7 back in 2014 and she never got any 1099-C statements, and my Chapter 13 was Discharged last March, and so far at least, no 1099-C forms for me either. We were thinking to send our tax information to our accountant this week; are you suggesting I wait another few weeks to make sure I give my former creditors time to send out the forms?

Edit: I've been doing some internet research on 1099-Cs and see conflicting information:

• Some sites suggest all creditors are required to send out the form when debt has been cancelled via a Discharge, however, other sites suggest the sending of the form is optional. Color me confused.
• On sort of a related topic, I've seen suggestions the form will be sent from creditors early in a Chapter 13 while other sites indicate the form will only be sent for the tax year in which the Discharge was granted. Color me doubly confused.

[shipo]

So, one other thought; when debt has been sold to a Junk Debt Buyer, which company sends out the 1099-C?

When I look at the final list of creditors prior to my Discharge, it looks like only three of my nine creditors were still holding the debt, the rest had been sold off to the likes of eCAST Settlement Corporation and Becket & Lee. Thinking about this, I suppose it is possible for, say, AMEX to have sold off my debt for ten-cents on the dollar to one of the JDBs, and then one, both, or neither ultimately send me a 1099-C.

[bcohen]

I was under the impression sending out a 1099-C was optional for creditors once a bankruptcy had been successfully Discharged. My wife filed for a Chapter 7 back in 2014 and she never got any 1099-C statements, and my Chapter 13 was Discharged last March, and so far at least, no 1099-C forms for me either.

There is a lot of misinformation posted online. A creditor is required to send a 1099-C if they are voluntarily forgiving debt. A creditor is allowed to send a 1099-C if a debt has been unpaid long enough that repayment is unlikely, and the company wishes to take the write-off against its taxes. A creditor is not technically supposed to send a 1099-C if a debtor discharges their debt in bankruptcy. In the context of bankruptcy, the debt isn't voluntarily forgiven, nor is it being written off due to accounting regulations, so the debtor hasn't received any "income" due to the cancellation of such debts.

When I declared Chapter 7 bankruptcy, I had over $40k in debts, one (Discover Card) had been reduced to a judgment, several were owned by JDBs. None of my creditors sent 1099-Cs for their debts which were discharged. Apparently there are some companies which like to send a 1099-C for discharged debt, but none of my creditors did this. While not technically illegal, it's also not technically correct to do so, however other than the added paperwork of filing Form 982, it's really of no consequence because no taxes are owed on discharged debt.

[HHM]

"Not supposed to" is the wrong way to characterize the rule. The IRS rules do not require a creditor to send a 1099 for debt discharged in bankruptcy, but the rules don't prevent doing so. There are other forgiveness events that aren't voluntary where a 1099 is required. Think of it like this, all forgiven debt over $600 is subject to forgiven debt income reporting, but the rules provide some non mandatory exceptions.

[justbroke]

I received only one 1099-C for a mortgage that I discharged in my Chapter 7. Other than that, I did not receive any other 1099-C's for discharged debt. I do not know why I received one. I probably should not have used the stronger word "must send" when I should have written "may" send.

The provisions for "reducing tax attributes" from a debt discharged in a bankruptcy (Title 11) is on that form because creditors can and do send 1099-Cs. I'm not a tax expert so I can't comment on whether it is appropriate tax accounting procedure to send a 1099-C for a discharged debt. But, it does happen.

According to one source, a 1099-C is not required for debt less than $600. As a bankrupt debtor, we usually don't discharge debts that small. Certain covered businesses, in the business of lending money, are required to report. However, there appears to be a special rule that exempts companies from the reporting of a debt discharged in bankruptcy or other special circumstances. That's likely why those that receive a discharge in bankruptcy hardly ever receive a 1099-C.

But, the IRS does require this for forgiven debt.

[shipo]

Thanks folks, your comments help clear it up for me. Long story short, I *might* get one or more 1099-Cs over the next few weeks, or I *might not*; luck of the draw.

[justbroke]

HHM are you back or just visiting?

[HHM]

HHM are you back or just visiting?

Just visiting. My browser still remember my UN and PW
The place has come a long way.