How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask JoeLawyer Your Own Question

JoeLawyer
JoeLawyer, Attorney
Category: Bankruptcy Law
Satisfied Customers: 767
Experience:  Attorney in the practice of Bankruptcy Law since 1996
Type Your Bankruptcy Law Question Here...
JoeLawyer is online now
A new question is answered every 9 seconds

Have an extremely specific 1099-C question...not looking for

Resolved Question:

Have an extremely specific 1099-C question...not looking for shoulds/probablys/discretion of the court/etc. type answers...looking for definitive/case specific answer.
I had (non-primary residence) mortgages discharged in a Chapter 7 about 3 years ago. I did not reafirm any of them.
Prior to the discharge, and through to today, I challenge the foreclosure processes (via all the standard motions/filings/answers/demands/etc.). I am not paying the mortgages, but I do happen to be collecting rent.
I will (obviously) loose the properties to foreclosure at some point, possibly even 5,6,7+ years from the date of the discharge.
I understand that the banks should file 1099-Cs, with the bankruptcy box checked, and if it is not checked I should fill out Form 982. Based on this scenario, I have the following question(s).

Given the fact that I've challenged the foreclosures post bankruptcy filing, have I "forfieted" my bankruptcy protection, and so do the 1099-Cs become valid and reportable as "income"?

Since these legal actions have essentially allowed/facilitated an increase in the amount of the discharged debt (legal fees, taxes paid, interest, etc.), am I responsible for the increased amount, or even all of it because of such actions?

Does the timing of the 1099-C in relation to the bankruptcy filing play a part in any of this?

Again, really looking for a definitive answer, as I really need to know if I need to prepare for 1099-C tax burdens. Thank you for understanding.
Submitted: 1 year ago.
Category: Bankruptcy Law
Expert:  JoeLawyer replied 1 year ago.
HiCustomer

You are obviously already well-studied in this area. As I was reading your question, I started formulating an answer in my head, and I thought "debts discharged in bankruptcy is not a taxable event" and then you indicated you knew that; then I started thinking "Form 982" then you indicated you knew that, so let's see if I know anything you haven't already figured out for yourself...

Questions:
Given the fact that I've challenged the foreclosures post bankruptcy filing, have I "forfieted" my bankruptcy protection, and so do the 1099-Cs become valid and reportable as "income"?

When a Discharge is entered in bankruptcy, the liability is discharged and thus no taxable event will occur even if the creditor attempts to call the debt "forgiven" thereafter. The only things that normally can bring a debt back in to play were if the debt had been reaffirmed during the bankruptcy case, or if the debtor refinanced afterward, and then defaulted. If no reaffirmation agreement or subsequent refinance took place, then there is no debt to be forgiven to be considered income.

Since these legal actions have essentially allowed/facilitated an increase in the amount of the discharged debt (legal fees, taxes paid, interest, etc.), am I responsible for the increased amount, or even all of it because of such actions?


I doubt if you will find a concrete answer on this, since the accurate answer is "If the judge says you are." Normally, no - the debtor will not be held accountable for any increases in the amount owed since the debt owed by the debtor was discharged, and generally the creditor will have to try to get their claim - including the increased amount from post-bankruptcy litigation - from the sale of the collateral only. I can say that I have never had a client get stuck with post-bankruptcy damages related to ongoing litigation. BUT... this is not to say that I think a judge couldn't or wouldn't assess damages if the judge thought the additional post-bankruptcy litigation was excessive or prosecuted only to stall the proceedings. In other words, all liability of the debtor related to the Note is discharged, but it is not impossible for the debtor to incur post-bankruptcy liability for abuse of process or intentional tortious acts post-bankruptcy, though it is really rare for a creditor to attempt to stick that type of ex post facto liability on the debtor. My guess would be that the debtor would not be liable for any of the post-bankruptcy litigation unless the debtor excessively stalled the proceedings to the point that the judge deems it a sufficiently egregious abuse of process to start attaching liability to the debtor.

Does the timing of the 1099-C in relation to the bankruptcy filing play a part in any of this?

That's a little vague so I'm not sure if this answers your question: it might. If the 1099-C is issued prior to the bankruptcy, then it is theoretically possible that the IRS will deem the debt forgiven prior to it being discharged, and thus a taxable event notwithstanding the subsequent bankruptcy. However, that is theory; not necessarily practice. I have had a few clients get a 1099-C, then we filed bankruptcy shortly thereafter, and the 982 evidently still kept the IRS from pursuing the debtor for taxes on the forgiven debt. Though, it is possible that the IRS didn't drop it because of the 982 but because they deemed the debtor insolvent, which is of course another way to avoid the taxable event when debt is forgiven. The IRS may assume that since the debtor filed bankruptcy shortly after the debt was forgiven, that the debtor was most likely insolvent when the debt was forgiven, so the IRS drops it. It's hard to say. Other than that response, I'm not sure what you are looking for with this question, so if I missed the mark let me know!

Good luck,
Joe

LEGAL NOTICE: I am only licensed to practice law in certain state(s) and I cannot give legal advice to someone who does not reside in a state in which I am licensed, nor shall anything I say in the above answer or elsewhere on this site be deemed legal advice, even to someone who resides in a state in which I am licensed. Funds I receive from JustAnswer.com are gratuities paid to me for taking the time to respond to questions, not for legal advice. This forum is designed to provide general information only, and information herein is not warranted to be correct or applicable in any way since laws may have been misinterpreted herein, since laws change from time to time, and since the impact of those laws on any particular situation varies. The information presented in this site shall not be construed to be formal legal advice nor the formation of an attorney-client relationship. Persons accessing this response are encouraged to seek independent legal counsel in their jurisdiction for guidance regarding their individual circumstances. Do not take any action or inaction based on information presented herein since it is informational and may not be accurate or applicable to you; it merely attempts to give you a basis of knowledge to help you formulate questions to ask a legal or other professional in a face-to-face meeting in your jurisdiction. JoeLawyer is an attorney but does not hold himself out to be a specialist or expert in any area, regardless of assertions made by any third party, and any implication of being an expert or specialist herein is made in error. I hope the information presented above is useful to you. Answer above is (c) JoeLawyer. All rights reserved.
JoeLawyer, Attorney
Category: Bankruptcy Law
Satisfied Customers: 767
Experience: Attorney in the practice of Bankruptcy Law since 1996
JoeLawyer and 2 other Bankruptcy Law Specialists are ready to help you

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • Mr. Kaplun clearly had an exceptional understanding of the issue and was able to explain it concisely. I would recommend JustAnswer to anyone. Great service that lives up to its promises! Gary B. Edmond, OK
< Last | Next >
  • Mr. Kaplun clearly had an exceptional understanding of the issue and was able to explain it concisely. I would recommend JustAnswer to anyone. Great service that lives up to its promises! Gary B. Edmond, OK
  • My Expert was fast and seemed to have the answer to my taser question at the tips of her fingers. Communication was excellent. I left feeling confident in her answer. Eric Redwood City, CA
  • I am very pleased with JustAnswer as a place to go for divorce or criminal law knowledge and insight. Michael Wichita, KS
  • PaulMJD helped me with questions I had regarding an urgent legal matter. His answers were excellent. Three H. Houston, TX
  • Anne was extremely helpful. Her information put me in the right direction for action that kept me legal, possible saving me a ton of money in the future. Thank you again, Anne!! Elaine Atlanta, GA
  • It worked great. I had the facts and I presented them to my ex-landlord and she folded and returned my deposit. The 50 bucks I spent with you solved my problem. Tony Apopka, FL
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
 
 
 

Meet The Experts:

 
 
 
  • FiveStarLaw

    Attorney

    Satisfied Customers:

    3203
    Bankruptcy Lawyer. Experienced.
< Last | Next >
  • http://ww2.justanswer.com/uploads/FL/FLAandNYLawyer/2012-1-27_14349_3Fotolia25855429M.64x64.jpg FiveStarLaw's Avatar

    FiveStarLaw

    Attorney

    Satisfied Customers:

    3203
    Bankruptcy Lawyer. Experienced.
  • http://ww2.justanswer.com/uploads/TL/tleeders/2012-6-13_204815_TSL1.64x64.jpg Terry L.'s Avatar

    Terry L.

    Attorney

    Satisfied Customers:

    2204
    Better Business Bur 15yrs bankruptcy experience. Chicago Bar
  • http://ww2.justanswer.com/uploads/mnphillips2/2009-03-13_203105_10984459-249293407.jpeg Phillips Esq.'s Avatar

    Phillips Esq.

    Attorney-at-Law

    Satisfied Customers:

    950
    B.A.; M.B.A.; J.D.
  • http://ww2.justanswer.com/uploads/CO/cortrightlaw/2011-12-5_4117_Kevin.64x64.JPG cortrightlaw's Avatar

    cortrightlaw

    Attorney

    Satisfied Customers:

    490
    Attorney practicing Bankruptcy Law including Chapter 7, Chapter 11, Chapter 12, and Chapter 13.
  • http://ww2.justanswer.com/uploads/Jay1968/2006-12-03_004423_JoeRossPhoto.jpg JoeLawyer's Avatar

    JoeLawyer

    Attorney

    Satisfied Customers:

    376
    Attorney in the practice of Bankruptcy Law since 1996
  • http://ww2.justanswer.com/uploads/DY/Dylatess/2012-9-11_1968_BHBTemplePhoto.64x64.jpg dylatess's Avatar

    dylatess

    Attorney

    Satisfied Customers:

    370
    35 plus years of experience specializing in bankruptcy law
  • http://ww2.justanswer.com/uploads/US/USLawAnswers/2012-9-20_23143_20090105211638Headshot3b.64x64.jpg Brent Blanchard's Avatar

    Brent Blanchard

    Bankruptcy Attorney

    Satisfied Customers:

    315
    Twelve years experience in all aspects of debtor & creditor BK.