Received 1099-C while in first year of Chp 13

[jackson123]

Hello,
I received a 1099-C for business loan I had taken out. I was a sole proprietor and this debt is included in my Chapter 13 payment with all my other personal debt. Have any of you received a 1099-C while in BK (7 months into it)? I have asked my lawyer what we should do and we are waiting to hear back but wanted to ask on this board as well.
Thank you

[justbroke]

Yes, I've received 1099-As and 1099-Cs. You need to contact a tax professional who, if they're not just your average tax preparer at your corner store, should know Form 982. I didn't double check the form number, but any true tax professional, and even some CPAs, should be able to get that dealt with. Please remember that a 1099-C lists an amount that is treated as regular income. You want to deal with that properly so you don't end up being improperly taxed on the amount forgiven.

Also, and I say this as a non-tax professional -- just a person on the Internet -- that it is weird to get a 1099-C now in an active Chapter 13. The case hasn't bee dismissed or has been discharged, so how much would they know to put on the 1099-C unless they forgave it in total.

[jackson123]

They did not forgive anything it’s part of the 13 plan. Seems like they are double dipping. It’s a PayPal loan and they are the worst!

[justbroke]

They did not forgive anything it’s part of the 13 plan. Seems like they are double dipping. It’s a PayPal loan and they are the worst!

A 1099-C is a forgiveness of debt. Probably 90% of unsecured creditors sell their bad debt to junk debt buyers (for less than $0.10 on the dollar). The other amount is written off and you may receive a 1099-C for that written off value.

Are you in a 100% plan? If not, then they did forgive all or a portion of the amount.

Since you are in a Title 11 bankruptcy it's all irrelevant. You file the appropriate form with the IRS and you don't worry about the tax implications of forgiven debt.

[jackson123]

No not in 100% plan. The amount of the 1099-C is exactly what they claimed in the BK

[justbroke]

No not in 100% plan. The amount of the 1099-C is exactly what they claimed in the BK

Yep. They filed a claim in the BK and did an accounting write-off not expecting anything in the bankruptcy. The claim may have been filed by a collection agency which purchased the debt. In any case, they can file a claim. You can file a form in your taxes and not have a tax debt. What they do collect in your bankruptcy may not even cover the loss in interest.

I would not worry about this. This is not a double claim. The bank is required ti issue a 1099-C after certain events. Look on Box 6 on the 1099-C and it probably has the bankruptcy code on it ("A"). If it has a different code, then that designates the reason for the 1099-C which they must issue. (Code "G" could be a different type of business practice where they stop collection.)

Usually for a Chapter 13, the 1099-Cs come late in the process. Perhaps your 1099-C is really related to some other event in 2022. Again, the code in Box 6, will tell you the event that requires the bank to file that form with the IRS.

[jackson123]

Yes, Box 6 has code "A"

My fear here is that we are due a refund this year and not sure if we have to turn our entire refund over to the trustee. If for some reason the IRS comes back years later and says you should have paid taxes on this, then we are paying out of pocket. This is of course if the Trustee takes the entire refund.

FYI
I did enter this into TurboTax and it did come back and say no taxes were due.

[justbroke]

Exactly. If you file a form 982 (I suggest using a tax preparer that knows about 982 and tax attributes) you would have no tax liability. The IRS will not come after you later because a.) the 1099-C is filed with the IRS electronically and will be on your tax account, and b.) your filing of the 982 "should" remove that tax liability. The IRS, despite some of their aggressive collection powers, is actually pretty good at what they do. I've had occasions to speak with their collection specialists several times over the years of bankruptcy. They are professional.

I always highly recommend that anyone receiving a 1099-C to have a competent tax preparer or CPA to do the taxes to make sure it's completed correctly.

Bottom line: no fear if you have your tax preparer properly prepare the requisite form (982) to let the IRS know that this was discharged in a Title 11 proceeding (bankruptcy). Many of us have received form 1099-C, including myself, and there has been 0 problems when properly reported on your taxes for the year in which you received the 1099-C.

[NwodGniog]

A 1099-C is a forgiveness of debt. Probably 90% of unsecured creditors sell their bad debt to junk debt buyers (for less than $0.10 on the dollar). The other amount is written off and you may receive a 1099-C for that written off value.

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I am curious. Has anyone on here received a 1099-C for the amount written off when the OC sold the debt to a JDB? I can certainly see where there is a possibility of that happening. And I read on a now defunct forum that even some Junk Debt Buyers would send the debtor a 1099-C when they settled a debt for less than the amount owed, but I never got any further information about that.

All of my debts are so very old and way past the statute of limitations for lawsuits that I no longer hear from even junk debt buyers anymore. There was one zombie debt collector that started to call, but then fell silent when I emailed them one of my DV and CD letters. The one that came closest to suing me locally was for the deficiency balance from a repossessed car loan. I got very proactive with that one and emailed the vice president of the company and explained how the statute of limitations for that sort of debt was even shorter than the SOL for credit card debt. It was only 4 years, and that time had already passed. She emailed me back and said that they were not going to pursue me any further at that point. I was expecting a 1099-C that year, but never received one.

[NwodGniog]

So, I looked into this, and it seems to mainly happen when a junk debt buyer contacts you about an out of statute debt and you balk at paying. When they realize they are not going to get paid by you voluntarily, and they know you will fight them in court and win due to the statute of limitations, some of them will send you and the IRS a 1099-C form. This is improper, but a real headache to fight. It is improper because they or the company they bought the debt from was supposed to issue the 1099-C years ago, when the trigger for filing a 1099-C had accrued. There were several triggers mentioned in the article, but to name a few.... when the statute of limitations first expired, when 3 years had passed and no significant debt collection activities had been attempted (this applied to many of my debts, the debt collectors would just fall silent for years), and there were several others as well. But the point is that they missed their opportunity to file a 1099-C, and that tax year might have already passed the 3 year statute of limitations for the IRS if you timely filed your return. So, there is a special form you need to file, but it is not available for download on the IRS.gov site. You have to call the IRS and ask them to file it for you, and they in essence ask the debt collector to amend their 1099-C and issue a corrected one. Then you would have to file by paper through the mail and include your written statement about what happened. Or you could try the form 982 route if you are insolvent. Or third, if it is not much money, you could just include in "other income" on your 1040 and take the tax hit and be done with it.