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 socrateaser Your Own Question
socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 38911
Experience:  Attorney and Real Estate Broker -- Retired (mostly)
Type Your Bankruptcy Law Question Here...
socrateaser is online now
A new question is answered every 9 seconds

In 2010 I paid $44,000 mortgage interest and filed for Chapter

Resolved Question:

In 2010 I paid $44,000 mortgage interest and filed for Chapter 13 bankruptcy. When I received my 1098 for the year however only half of the interest was being report. I called the bank and they said that even though I paid the $44,000 in interest, they would only report half because of the bankruptcy. The mortage was not included in the bankruptcy. This has huge ramifications for my family since it leaves us owing a substantial amount as opposed to nothing. Is this legal? How can I not be given credit for interest paid?
Submitted: 6 years ago.
Category: Bankruptcy Law
Expert:  socrateaser replied 6 years ago.

I must confess that I do not know what the bank is thinking. Treas. Reg. 1.163-1(b), provides: "Interest paid by the taxpayer on a mortgage upon real estate of which he is the legal or equitable owner, even though the taxpayer is not directly liable upon the bond or note secured by such mortgage, may be deducted as interest on his indebtedness."

The only thing that comes to mind is that at the moment of the filing of the bankruptcy petition, all property owned by the debtor becomes the property of the bankruptcy estate. However, at the date of plan confirmation, all property not administrated by the trustee is revested in the debtor. So, at most, the argument that you were not the legal or equitable owner of the property would only hold from the date of filing of the bankruptcy petition, until the date of plan confirmation. This could reduce your deductable interest, but certainly not by one half, unless your Chapter 13 plan required 6 months of the year to confirm.

I have researched the applicable statutes and case law, and I find nothing that provides a contrary view on this issue. So, while I cannot definitively say that you should calculate your interest by taking the full year and then subtracting any payments made from the date of the filing of the bankruptcy petition until the date of plan confirmation -- that is probably what I would do, and then when the IRS sends an audit letter, I would explain my position, and hope it was accepted without a battle.

Hope this helps.

NOTICE: My goal here is to educate others about the law. I am always available to answering your follow-up questions after you click Accept – however, if you do not click Accept, the website gets paid, and I receive nothing. This is true, even if you are on a subscription plan. So please click Accept, so that I will be able to continue to provide this service for others in the future.

socrateaser and other Bankruptcy Law Specialists are ready to help you