what does this mean???????

[cetiya]

I recieved in the mail, a letter from Wells Fargo financial security, it says its a tax return document. inside is a paper that says the debt of 2318.14 has been cancelled. says Cancellation of debt. date cancelled 8-16-07 I havent paid them for over two years. is this just like a charge off, and someone will buy the debt and continue to harrass me? well, not really harrass, cos my lawyer told me he was going to file (finally) this week. but I have a hard time believing that wells fargo would just cancel a debt.

[FreshLikeADaisy]

Cetiya, what you received sounds like a 1099-C, which is where a creditor has forgiven (or written off) your debt. It should say "1099-C" somewhere on it if that's what it is. The 1099-C is issued for cancellation of debt, because it's counted as income on your taxes. By issuing the 1099-C Wells Fargo is forgiving your debt, but there is no guarantee that the debt won't be sold to a junk debt buyer, only that Wells Fargo is forgiving it. The dollar amount will be reported to the IRS and is considered taxable income for you, so you'll need that form to complete your taxes. In any case, give a copy of it to your atty, and make sure Wells Fargo is notified of your bankruptcy. Good luck!!!

[cetiya]

it is a 1099 C. so does that mean if I do my taxes with a 10-40 form, I add the amount to my W2 wages? I usually use turbo tax. or just add it seperately to my taxable wages?

[HHM]

Assuming you have not filed BK on this debt, yes...the 1099-C counts as additional income.

You will want to look at IRS Form 982 and the associated publication that deals with forgiven debt. If you were insolvent at the time the debt was forgiven, you do not have to pay income tax on that amount.

If you did file BK on this debt, then you do not have to pay income tax on that amount.

[FreshLikeADaisy]

Cetiya, I'm not sure, but I seem to recall that it goes under Miscellaneous Income. If you use TurboTax (I love TurboTax ) it should ask you if you have received any 1099-Cs; if it doesn't ask you up front you can always look it up in the help feature (which is actually pretty helpful, or has been for me). Good luck!!!

[FreshLikeADaisy]

Good point, HHM. She may not have to add it to her taxes at all.

[rfassett]

Lets see, potential tax on $2,318.14 = $231.81 to $811.35. Potential penalty if you guess wrong = upto $500. And that is just considering the Federal tax - not state, county or local that could also tax this income. Cost of a professional that understands these things to prepare your return = $250 to $350. Might be a good year to not do your own return. If it does go on your return, it goes on the miscellaneous line. If you arbitrarily leave it off the return, whether it is taxable or not, you most likely will receive a love letter of inquiry from the IRS - because Wells Fargo also sends a copy of that 1099-C to the IRS - and if it does not show up on your return, they will want to know why.

Just my 2 cents.

[ssdsco]

If you receive a 1099-C does that imply the debt was settled and no further collection activity can (should) take place ?

I have creditors threatening to "write off" my debt but I didn't think "write off" implied the debt was settled, collection activities would stop and a 1099-C would be issued.

If you receive a 1099-C I assume it must be included/addressed in your income tax filing regardless of whether you owe tax on it or not.

[cetiya]

that just sounds odd to me to include it as income, cos it isnt like anyone handed me 2300 dollars. I know I got the money years ago, but not now. o well, I'll ask my lawyer on monday. thanks and it was included in my bk debt.

[rfassett]

that just sounds odd to me to include it as income, cos it isnt like anyone handed me 2300 dollars. I know I got the money years ago, but not now. o well, I'll ask my lawyer on monday. thanks and it was included in my bk debt.

You are correct, nobody handed you $2,300. But they did relieve you from the obligaion to pay it back. Had you been required to pay it back, you would have been out $2,300. Since that was a legal obligation on your part, now that you no longer are required to pay it, in the eyes of the IRS, you have been enriched by the amount. Thus they consider that income unless you can show that you are insolvent or bankrupt.

[rrockinggramma]

If you have filed BK, then you will not owe any taxes on that income. Wells Fargo is being difficult, which is their MO. What they have done is sent that to the IRS as well and you will probably end up having to prove to the IRS that you were insolvent (filing BK does that) and do not owe any tax on that money. We had to send to the IRS our creditor matrix (showing the creditor listed) our discharge paperwork. The IRS investigated and voila, no tax owed. Household Finance did this to us when we short saled our home, discharged the difference in our BK, and of course, they got nothing after the 1st mortgage was paid. The IRS straightened it all out for us. And on your taxes it has a place to say you filed BK. (life changing events section)

[FreshLikeADaisy]

If you receive a 1099-C does that imply the debt was settled and no further collection activity can (should) take place ?

Ssdsco, my understanding is that a 1099-C applies to *forgiven* debt (as opposed to merely written off debt) which is why it is income, so no further collection activity could legally take place, as they (and the debtor) reported the debt at least for tax purposes, basically, as satisfied. Seems to me as though any further collection activity would be -- at the very least -- easily disputable, both for credit reporting and legal purposes, because that 1099-C is a voluntary admission that the debt is considered settled. I can't imagine how a creditor would, for instance, defend a motion for judgement in court where that same creditor had already issued a 1099-C for that same debt. But I'm no attorney, so...

[ssdsco]

Ssdsco, my understanding is that a 1099-C applies to *forgiven* debt (as opposed to merely written off debt) which is why it is income, so no further collection activity could legally take place, as they (and the debtor) reported the debt at least for tax purposes, basically, as satisfied. Seems to me as though any further collection activity would be -- at the very least -- easily disputable, both for credit reporting and legal purposes, because that 1099-C is a voluntary admission that the debt is considered settled. I can't imagine how a creditor would, for instance, defend a motion for judgement in court where that same creditor had already issued a 1099-C for that same debt. But I'm no attorney, so...

Thanks. That's what I understood. For unsecured debt if you receive a 1099-C that implies you have a signed agreement with a creditor to settle the debt for less.

[cetiya]

boy, they sure didnt do me any favors. I was going to get 400.00 dollars back on my taxes, but adding this to my income dropped the return to 90.00. grrrr. o well. turbo tax didnt ask anything about being bankrupt.

[FreshLikeADaisy]

Cetiya, have you looked in the help utility for anything bankruptcy related? As someone else posted somewhere, you can note a bankruptcy in the Life Changes area on your return? I haven't done mine yet so I'm kinda fuzzy on it, but if you CAN indicate your bk on your taxes, it is very much in your best interest to do so, to prevent any audit troubles on down the line AND to avoid having to pay taxes on that 1099-C income. A bankruptcy pretty much proves insolvency.