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Cancellation of debt and 1099-c from the IRS

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heres the details current fiance received letter last week about 1099. when going through divorce wife continued to stay in trailer on not paying payment and not telling him he found out when contacted at 6 mths behind after all said part of the loan was in bankruptcy for 5 yrs ending 2009. then later the trailer was reposed due to harassment from lender. last week was first learning about ditech a(same wife verbal counsels child support unknowingly only judge can do that) so his overall debit is so much greater than asset. n ow irs say 1 month to pay total from irs changes amended was 29, 303 leaving $6,830 in owed taxes. when contacted about repossession first time he filed bankruptcy to keep trailer but continued to be harnessed about payments

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it was included in the bankruptcy forgive me for I have never dealt with a bankruptcy or 1099. somehow when he came out of bankruptcy he was still paying on trailer yet still being harassed being young and hot headed he told them to come get it because of lack of understanding after 10 yrs of payments he owed more on it than he originally gave for it .  it also was during the time of predator loans

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Some debts "pass through" a BK...which means they're not discharged and you still owe them.  It used to be that if you continued to make payments, it was understood that the debt passed thru.  The laws changed around 2004-2006.  

I still suggest you talk to a lawyer.  This specific case could be complicated.

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I wish there were a sticky on 1099-C so I wouldn't have to repeat this.

Note that things are different dealing with BK.  In that case, your friend needs to talk to a lawyer.


Here is an example of how to deal with the 1099-C:

Make a list of all your assets and liabilities at the time the 1099-C was sent.  Compare the assets and liabilities BEFORE and AFTER the 1099-C ended the debt.

By assets, I mean everything.  I used assessed values of property and blue book value for the cars.  

By liabilities I mean everything.  I included loans from relatives.  Those are real debts, and must be included.  

If you are insolvent (assets < liabilities) AFTER the debt discharge, you owe no taxes.  Fill out the proper forms for the IRS to show this.  I included copies of my assets and liability lists.

If you are solvent BEFORE the debt discharge, you owe taxes on everything discharged (BK may be an exception, talk to someone qualified for YOUR case).  

Suppose you were insolvent by $1000 BEFORE the discharge, and $2000 was discharged.  Now you are solvent to the tune of $1000, all due to the discharge.  You must pay taxes on that $1000.  


Again BK clouds the issue.  IN that case, talk to the BK attorney who handled the BK in the first place.  

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1 hour ago, usctrojanalum said:

good advice in here, except I wouldn't seek out a BK attorney.  I would seek the advice of a tax attorney. 

In most cases I would agree with you.  In this case the OP may still have to consult a tax attorney or a CPA anyway.

However, this was a case of BK, and the debts may have been discharged in BK.  That is why the OP should talk to the same attorney who handled the BK.  

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