You file a Chapter 7 or Chapter 13 Bankruptcy and you receive your bankruptcy discharge. You think, treats for everyone right? You say, could life get any better? And then, you get a letter from the IRS stating you failed to report debt that was forgiven from one of your creditors. You start to panic. What the hell is going on right? Well, remember that your creditors who sustain a loss will always deduct that loss on their business tax returns. When they report those losses it generates a 1099 to you. Normally, 1099 income from debt forgiveness is taxable to you. You start to really panic now. You are like—wait a minute, I filed bankruptcy on over 100k in debt!
Thankfully, you call your experienced bankruptcy counsel and ask, hey, I got a 1099 from a creditor, is this taxable to me? And because your bankruptcy counsel is experienced, she says no it is not taxable to you. Now, you stop hyper ventilating and can breathe normally again.
Your wonderful bankruptcy lawyer goes on to say that under the IRS Code, debt forgiven under Title 11 of the Code is not taxable to you. Since Chapter 7 and Chapter 13 Bankruptcy fall under Title 11 of the Code, it is not taxable to you.
And if your bankruptcy lawyer is a rock star like Kain & Scott they will even give you access to the form you need on their website to file with the IRS letting the IRS know that you filed a bankruptcy and any 1099’s they receive are not taxable to you. We suggest all of our guests file this form!
CONCLUSION
When the time is right, or when you are ready, reach out to Minnesota’s OLDEST bankruptcy law firm at www.kainscott.com. You will be so glad you did!
