Surrendered Home and We got a 1099 Surprise!

[LJoutWest]

We surrendered our home as part of our Chapter 7 and today we received a 1099 A for the abandonment/foreclosure of our home. Our attorney is livid as this should not have been done. At first I freaked out but realized that all it really means even if we had to put it on the taxes was to fill out two forms which would forgive the debt and not hurt our taxes. Our attorney is going to fax it to their local attorney and tell him to take care of it like yesterday. It is a violation of the law.

On a side note, we should know the UST's decision on our case by Friday, our attorney is very hopeful, I'm not.

[justbroke]

Issuing a 1099-A to a person in Bankruptcy may not be a violation of law. The Creditor (Bank) is required by law to issue a 1099-A upon acquisition and/or foreclosure. This is precisely why the IRS Form 982 has a checkbox for "discharged" under Title 11 (Bankruptcy). You simply file it with IRS Form 982.

If your home was surrendered in the Bankruptcy, the Stay as to that specific bank was dissolved by the Motion for Relief from the Automatic Stay as to the in rem action on the property. Issuing a 1099-A is not a demand for payment. It's a notification to the IRS that the Bank has acquired property.

Unfortunately, the IRS requires you to file a tax return in the year you have a Foreclosure. Whether you can determine the basis and whether there's a gain, can be problematic if the property is REO (Real Estate Owned), since it hasn't really "sold" yet.

Key questions... when did you receive your discharge? When did the lender receive lief from the automatic stay? While your attorney may get them to "retract" the 1099-A, this could come back and haunt you (via the IRS) at a later time. For those reasons, you should be talking to a tax accountant. I'm just saying.

[LJoutWest]

Actually, since we are not discharge and won't find out til this week sometime (by Friday I believe) on our response, and though in bankruptcy since we will either go 7 or 13, we are going to file the 982 on the advice of our accountant and of our attorney. The UST is interested in this though since they stated that it should not have happened since the loan was not forgiven and will be discharged one way or another in a bankruptcy. In the end though it is better to file since if we end in a 13 by filing the 982 since we won't owe or see an increase in income and the exclusion ends in 2012 and we'd still be in our chapter 13 if that is how we end up going that this way the amount of income is done away with. In the end not as big a deal as I thought.

[novayalife]

I too have received this 1099-A and my chapter 7 case was discharged and closed last june. Upon calling my attorney and my previous mortgage lender I found out this form is not violating bankruptcy law. At the time the loan originated I was liable for the property and thats why it states that in the 1099-A. I have allready filed my taxes and didn't have to file this form, you only have to if you receive the 1099-C Cancellatin of debt in addition to this. So its nothing to worry about and no reason for your attorney to do anything.