Bankruptcy & 1099-c Im freaking out.

[mellymel]

My wife and I filed for Chap 7 in May of 2010 and had a property worth $300,000 discharged “surrendered” .Well its 2012 and we received frightening 1099-c from the lender. Under (box.#5) “Was borrower liable for repayment of debt” and the answer marked by the lender was “yes”and for (box #6) of the 1099-c “Bankruptcy” was noted by the lender as “No” . I have all my paperwork from the courts stating we are discharged from this property. My question is will I have to file this $300,000 as income since the IRS received the same form from the lender stating that it wasn't part of the bankruptcy or can I file form 982 and cancel this debt since I have the discharge papers from the courts stating "this property was surrendered"? Please help. Stressed and confused.

[WhoCares1000]

Let me get this straight, you had a loan on a piece of property. After the property was surrendered and sold to pay off the loan, the balance was still $300k which was then discharged. Is that correct?

If so, then you file Form 982 and that should end that.

[mellymel]

Thanks for the reply WhoCares1000.
1. Courts discharged us from property in May of 2010 Chap. 7 " Loan was $300,000 left to pay by us when discharged.
2. Lender claims that even if we surrendered the property through BK Chap. 7 the property was still ours and under our name.
3. Lender claims that since the property is still under our name ( we still own the home ) the property is going through a foreclosure process and didn't finally sell till 10/2011. (I'm guessing that lender was doing the foreclosure proceedings)
4. Now we received a 1099-c for the amount of $300,000.

Again just a recap 1099-c received Feb.2012
(Box.#5) states "we (borrower) was liable for repayment" answer marked "yes"
(Box.#6) states "Bankruptcy" answer marked by lender as "no"

[willingtocope]

Originally Posted by mellymel

Loan was $300,000 left to pay by us when discharged.

I'm confused. Was this loan included in the bankruptcy, or did you reaffirm the mortgage so that you continued to pay on the mortgage and lived in the house?

[mellymel]

Original loan was $340,000 when I lived in it. I moved to California and still made payments to the loan. In August of 2009 I filed for Chapter 7 in California. That is when my lawyer said to stop making payments on the property cause you are surrendering the property. The loan stopped at $300,000 and not a single penny was made towards the loan. In May of 2010 we were considered discharged from the loan. We didn't have to worry about the lender harrasing us about the loan. We were not liable to pay. Just recently in February of 2012 this evil 1099-c came in. We looked at it and tried to figure out why box #6 "bankruptcy" said "no" and box 5 said what it said. I called the lender and they told me exactlywhat I wrote down in the previous post. Im wondering if form 982 can cancel this debt or will I have to claim it as income?

I didn't reaffirm the property. I wiped my hands clean and walked away filing Chap 7

[TomnTex]

If you did not reaffirm the mortgage and included the loan in the BK, then do the 982 and include information on the BK with it. Then, I think I would see if there was a way to go after the OC for filing fraud 1099-C. You might come out on this if you look into it. But, you should be able to get around that 1099 C without two much trouble.

[mellymel]

Thanks TomnTex. Im feeling a little better now but if I can get a few more people to agree with what you said then ill feel a hundred times better.

[Denita]

Originally Posted by TomnTex

If you did not reaffirm the mortgage and included the loan in the BK, then do the 982 and include information on the BK with it. Then, I think I would see if there was a way to go after the OC for filing fraud 1099-C. You might come out on this if you look into it. But, you should be able to get around that 1099 C without two much trouble.

TomnTex is exactly right.
Take a look at the IRS.gov site, get the form, talk with your CPA. I also believe that you should talk to an attorney regarding the OC filing the 1099-c "incorrectly".

[TomnTex]

In my case a 1099 C was issued to me after a repo during a divorce. I was not expecting it and I belive they have up to three years to send you one. I got mine a few weeks ago and went to see a tax person. Because I can show insolvency during that year, she thinks I can get out of it. We will see. Good luck on your situation.

[WhoCares1000]

Tom is correct, Contact your BK lawyer and ask if he knows a good CPA who understands 1099-Cs and BK. They should be able to get you out of this. You will probably have to file some of your BK papers with the 982 to prove that this really was discharged in BK but that should be it.

I also think they are right that the firm filed the 1099-C wrong but the fine will be so little ($50 I think) that the IRS nor the company will bother with it.

[mellymel]

Thanks again TomnTex. Denita and WhoCares1000 thank you for your input. My wife and I feel much better now.

[jq26]

For one thing, even without a bk you would have never had $300k in income because you exchanged the property in order to extinguish the $300k loan liability. So what was the deficiency? Your lender should know. And that is what they should have reported on the 1099.

Do yourself a favor and hire a good attorney to do your taxes this year. This has to be straightened out. You are clearly within the bk exclusion butthere is this nagging issue of reducing tax attributes that may snag you (such as basis reduction on other assets). So hire a good tax accountant that knows what they're doing on this issue. In my experience, good accountants are worth every penny anyway because they can sweep the code clean of deductions and income income exceptions/exclusions and more than pay for themselves anyway.

Publication 4681 (2011), Canceled Debts, Foreclosures, Repossessions, and Abandonments

Bankruptcy

Debt canceled in a title 11 bankruptcy case is not included in your income. A title 11 bankruptcy case is a case under title 11 of the United States Code (including all chapters in title 11 such as chapters 7, 11, and 13), but only if the debtor is under the jurisdiction of the court and the cancellation of the debt is granted by the court or occurs as a result of a plan approved by the court.

How to report the bankruptcy exclusion. To show that your debt was canceled in a bankruptcy case and is excluded from income, attach Form 982 to your federal income tax return and check the box on line 1a. Lines 1b through 1e do not apply to a cancellation that occurs in a title 11 bankruptcy case. Enter the total amount of debt canceled in your title 11 bankruptcy case on line 2. You must also reduce your tax attributes in Part II of Form 982 as explained under Reduction of Tax Attributes, later.

[Methuss]

Everyone so far is correct. If you were discharged of your liability in bankruptcy you owe nothing and it's not income on a 1099-C.

There are only two possibilities as to why the lender issued a 1099-c in this case. Incompetency or Maliciousness. Given how lenders are about foreclosures right now it could be either one. Incompetency is more likely from a 'name-brand' lender like Citi or BofA. Malice is more likely from sub-prime lenders like Aegis and New Century* as their employees just do crap like this to inflict extra payback on bankruptcy filers.

*New Century is currently being investigated in a criminal probe for a host of abuses including pressuring bankrupts into making payments by various means.

[bookreader]

Originally Posted by WhoCares1000

Let me get this straight, you had a loan on a piece of property. After the property was surrendered and sold to pay off the loan, the balance was still $300k which was then discharged. Is that correct?

If so, then you file Form 982 and that should end that.

I was wondering the same thing... something's fishy going on here. Mistake in paperwork?

[Max2]

My thinking is like Mehtuss.

It sounds to me like they or someone is just doing it out of maliciousness. Methuss knows more than I do I’ve been reading his knowledge off and on for the past 4 years.

They know dang good and well that it’s over and done with. They just did it out of spite in my unprofessional opinion. Who knows it could just be a rouge employee that likes to mess with people. Maybe the same mentality of a hacker or someone that sends those malicious viruses. Anybody with EIN can fill out any form of 1099 and send it to the IRS and then the poor person reported is then Guilty Until Proven Innocent. If you can, nail them.

Since they sold the property in 2011, I would assume they are using the $300,000 as a write off and dragging you into it. They surely don’t care about you.

Don’t worry you don’t owe a dime. The mortgager had a Deed of Trust that had all the legalities wrapped up in it. In the event of a default on the loan they get ownership in the property. The least you could have been liable for would have been the deficiency in the sale of the property, but you are off the hook on that because you had it included in the Chapter 7 that was discharged, so they are SOL. The only thing you have to do is get the IRS straightened out.

Like it was said, just file the Form 982 and that will get you off the hook with the IRS.

Keep the 1099C as backup in case you run out of toilet paper.

[jmw1212]

I also received several 1099c's this year for the 4 foreclosures that happened last, one more this year for next. I called my CPA and my bk attorney because the box was also checked. I guess because our bk has not been discharged as of yet. I too am a bit confused about how this works, but they both assured me I would not owe the IRS. I have to get with my CPA to review it all, something about our basis..I get that but, it doesn't seem right for them to check that box as they were all IIB prior to our default.

[jq26]

Correct. Even if discharged due to a bk, the basis of your remaining assets are reduced. Check the instructions for form 982.

That's what I mean when I say "tax attributes". Its typically basis. But for most people, reduction of basis has no impact unless they carried a rental property through a bk. If they carried a rental property through a bk, then the massive basis reduction will likely only result in reduced annual depreciation deductions on schedule E and a larger lurking capital gain in the year the property eventually sells (assuming not sold as part of a 1031 like-kind exchange).

Your CPA will easily handle any of this.