IRS Form 1099C And Bankruptcy

You filed a bankruptcy and you have now received a 1099C from a creditor.  It shows that the debt you had with that creditor is income.

Do you have to pay taxes on the amount shown on the 1099C?

The answer is no, you do not have to pay taxes for this 1099C.

The reason the creditor issues a 1099C to you is that when a creditor compromises a debt or writes off a debt, the Internal Revenue Service will ordinarily treat the money you did not have to pay to the creditor as income.

Unfortunately, many tax preparers are unfamiliar with bankruptcy laws and do not realize that this debt was discharged in a bankruptcy.

A 2011 revision to Section 108 of the Internal Revenue Code clarifies that discharged debt is not income for tax purposes.

Your tax preparer only needs to attach IRS Form 982 to your return to deal with this issue.

 

by , New Orleans, Louisiana bankruptcy lawyer.

About Kevin Gipson, Attorney at Law

I am an attorney licensed in all State and Federal Courts in Louisiana. I practice in the Greater New Orleans Area and work with Consumers to help them with their debt problems. My primary areas of practice are Chapter 7 and Chapter 13 bankruptcy and Student Loan Law.
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