Is my BK ever going to truly be over?

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I got a 1099-A in the mail earlier this year, but didn't think it was a big deal since we got discharged Chapter 7. My mom always does my taxes but can't do it this year cuz she doesn't understand what to do with this form & doesn't wanna screw our taxes up. Tomorrow we're taking everything to H&R Block & hope we can sort this out although that's probably gonna cost us $400.

I asked my BK lawyer who said I should get a tax professional to take care of it. Does this mean I'm gonna have to pay taxes on $120k left over from the house? After just paying off an old debt not included in the BK, I thought we were finally coming out on the other side but just when I think I'm out, they pull me back in :-) Trying to find some humor in this.

Only info we could find is to gather all receipts for improvements we made in/to the house to offset that money. Some things I can't even find receipts for, ironically this past New Year's Eve I packed up all files related to the house & put them in a closet & even threw some stuff out, thinking I'm moving forward & just spent this evening digging to find old receipts. We bought a new stove while in that house but left it behind, I left a lotta paperwork related to that stove (which probably could've proved the purchase) thinking I was being nice & helping the next family who moved in. Now I'm screwed.

I expected this to follow us for 7 years at the least (we're in year 2) but will this ever end or does stuff keep popping up? Any advice before I go to H&R Block? Thanks in advance.

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It is my understanding that through the end of 2012 you will not owe taxes on foreclosure deficiencies. A law was passed exempting this from taxation. There should be a check box on the 1099 indicating that it was mortgage debt to show it. Now this only covers if your foreclosure occurred after a re-affirmation on the original loan note.

If your loan was never reaffirmed and the loan was discharged, you owe NO TAX on it. The lender was supposed to check a box on the 1099 indicating the debt was discharged in bankruptcy. If they failed to do so under these conditions they have committed perjury and you have to challenge the 1099 filing with the IRS. Your BK filing documents showing no reaffirmation and the discharge notice is all that is required to show this.

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Any advice before I go to H&R Block? Thanks in advance.

Try this:

The Mortgage Forgiveness Debt Relief Act and Debt Cancellation

"Qualified principal residence indebtedness: This is the exception created by the Mortgage Debt Relief Act of 2007 and applies to most homeowners.

Bankruptcy: Debts discharged through bankruptcy are not considered taxable income. "

I believe that Methuss has it correct....

Edited by LearningasIgo
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Thank you both so much. Looking at this 1099-A, it says FORECLOSURE with a phone # under the Lender name/address, but no box indicating the debt was discharged in bankruptcy.

Lender's listed as the first creditor on our voluntary petition, and I know I would not have reaffirmed this debt because it was the largest debt. Even if some mistake was made I haven't heard from the lender in over a year, and they sold the property for about half the FMV listed on the 1099-A.

The only box checked says: "If checked, the borrower was personally liable for repayment of the debt."

I have my petition & discharge notice to take to H&R Block, will also take this mortgage forgiveness info. I'm assuming H&R Block can help me with challenging the 1099 if need be?

Thank you both again!

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It is a bit complicated. Without the federal law that is in effect through 2012, even after a bankruptcy you may have to reduce tax attributes up to the $120k amount. In other words, you would have to reduce the basis of a pre-defined list of asset types up to an amount equivalent to the $120k.

However, if the property was a primary residence, then reduction of tax attributes it is a non-issue. You or your accountant files a form 982 and the 1099 issue is neutralized.

Don't sweat it.

Edited by jq26
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