you were “INSOLVENT”
at the time of the creditors charging off the debt.
Since this is a
bankruptcy web site I will deal with the issue that your debt was
discharged in bankruptcy before the creditors “charged off” the debt. If
you did file for bankruptcy before the charge off then always contest the
1099-C you received.
One way to
determine if the debt was charged off prior to the filing bankruptcy,
check your credit report especially the one that you provided your
attorney prior to filing.
exception is relevant to the charge off date and the status of the
bankruptcy. Were you INSOLVENT at the time of the charge off of the debt?
So the next question you will ask
is, “WHAT IS THE MEANING OF BEING INSOLVENT”?
To determine if
you were insolvent, add up all of your debt (including all the amounts
being charged off) or at the time of the charge off and all of your assets
including money in your bank accounts. If you owed more than what you are
worth then you were insolvent.
1: $100,000. worth of assets (FMV of cars,
boats, cash, stocks, etc)
$ -70,000 Debt owed prior to
the charge off.
+ 30,000 your 1099-C appears to be
valid (You might have to pay taxes on it). If your income is low, the
taxes may be nothing or if your income is high the amount of taxes could
$100,000. worth of assets (FMV of cars, boats, cash, stocks, etc)
$ -70,000 Debt owed prior to the charge off.
$ -50,000 (Family residence is
“upside down” -you owe more than it is worth).
$ -20,000 NEGATIVE
at the time of the charge off- you were INSOLVENT.
In Example 2, you
should take the necessary steps to contest the 1099-C. A word of note,
this is NOT the duty of your bankruptcy attorney! It is YOUR
responsibility to do so through your accountant or tax professional. Your
bankruptcy attorney assisted you in getting your debt discharged and does
not to provide tax advice or legal advice.
When adding the
total of your assets use the fair market value at that time. This could
be through e-bay values, swap meet values or the classified ad values in
You could also
obtain information from the IRS website for the 1099-C information and
form or your tax professional can assist you in filling out the form. For
my bankruptcy clients who received a 1099-C, post bankruptcy, I will
provide a “sample” letter to send to the IRS and the tax form upon
request. This is just one of the benefits my clients receive without any
Again, for more
information go to the IRS WEB SITE FOR IRS-1099-C tax form_________.
that each and every case may be different so you should always discuss
everything with your attorney prior to filing bankruptcy. I estimate that
95% of my Chapter 7 clients are “upside down” when they get a “charge
off” from a creditor. In other words they most likely would not have to
pay any additional taxes on the 1099-C since they were insolvent.
some cases, 1099-C’s may be treated as income and you could lose any
public benefit or assistance if not contested. Also the tax laws
are always changing so check with you CPA or you tax return person for
before filing you state and federal tax returns.
website provides information regarding the 1099-C form and is not to be
construed as legal Advice.
Attorney David A. Casey
only represent clients in California and is a member of the State Bar of
1099-C Questions? Will You Have Taxes On
Receive a 1099-C from your creditors
after bankruptcy? Pay taxes on discharged debts? Steps to take to make sure you
actually have any tax liability for the 1099-C, Most don’t!