Can Creditors Issue Form 1099C on Discharged Debt?

[kornellred]

I was just reading some posts about debt forgiveness and got a bit confused about the whys and wherefores of this issue.

My question is: Can a creditor forgive the unpaid portion of a debt discharged in Chapter 13 after the discharge has been issued? The creditor cannot gain anything from such an action, at least as far as unsecured debt goes.

[HHM]

Read this

http://www.bkforum.com/showthread.php?79340-1099-A-and-1099-C-after-foreclosure-and-or-bankruptcy

Short answer, yes, they can. And creditors don't gain anything in any circumstance from issuing a 1099-C, the IRS simply requires them to do so. Strictly speaking, the IRS code does not "require" a 1099-C on debt discharged in BK, but it does not forbid. From an internal policy standpoint, it is simply easier for a creditor to issue 1099-C on all forgiven debt regardless of the reason it was forgiven.

[RichM]

Debt settlement can also result in issuance of a 1099C if the amount of forgiveness of any given debt is $600.00 or more. In most cases, it is taxable as "other income," although there are some exclusions.

-Richard

[walkthaplank]

Is there a deadline for them to send the 1099? I did my taxes with Turbotax and I would like to file them, but my 2nd was one that was forgiven by BofA and I'm afraid the moment I submit my return a 1099 will show up in the mail. They did send me a 1098 for the little bit of interest they received from me this year.

[walkthaplank]

Is there a deadline for them to send the 1099? I did my taxes with Turbotax and I would like to file them, but my 2nd was one that was forgiven by BofA and I'm afraid the moment I submit my return a 1099 will show up in the mail. They did send me a 1098 for the little bit of interest they received from me this year.

Found the answer for my situation online. For anybody else who has discharged their BofA loan that was later forgiven, this is from BofA's website.

13. Will a customer benefit if their second lien mortgage debt has been discharged in a bankruptcy filing?

Yes. While customers who have filed for bankruptcy and receive a discharge of their second lien mortgage debt obligations are no longer personally liable for the debt, the bank still remains a lien holder to the extent of the remaining balance on the second lien. This means the bank still has a legal claim to the customer’s property as collateral to satisfy the second lien mortgage debt still owed through a court-approved foreclosure, or if the property is sold for a gain. Once the debt is cancelled and the lien extinguished or released (subject to court approval, if required), the bank relinquishes any further monetary or collateral claim to the property. This reduces the debt attached to the property and may provide the opportunity for the borrower to build equity in their home. Because the underlying personal obligation for the debt was discharged in bankruptcy, the bank will not report debt forgiveness to the IRS as a result of this transaction.