Is it true that when you file a Chap 7 bankruptcy that the cancelled debt needs to be reported as income?
I filed for Chap 7 bankruptcy before the law changed in 2005. My house went into foreclosure but was covered in the bankruptcy because I knew I couldn’t afford to keep it even after the filing. I am of the understanding from the attny that I DON’T have to report this, but a CPA is sayin it is included. I am totally confused and wish that people in the legal field and cpas would make agreements on the law.
February 25th, 2009 at 12:45 am
You should speak to your attorney for clarification.
S/he knows bankruptcy law better than your CPA does.
February 25th, 2009 at 10:31 pm
If the debtor provides you with a 1099-C for the debt cancellation, you have to report it as income for the year the debt was cancelled and pay taxes on it.
February 28th, 2009 at 1:26 pm
Generally it has to be included, although there are exceptions. You’ll get better advice from your attorney than from Yahoo Answers.
March 2nd, 2009 at 12:49 pm
Short answer: Yes.
If you are insolvents at the time of the bankruptcy, only the amount above your insolvency is taxed. Your bankruptcy attorney is better qualified to advise you on this than we are.
March 5th, 2009 at 9:39 am
Here is your answer:
Internal Revenue Code section 108(a) Exclusion from gross income
(1) In general
Gross income does not include any amount which (but for this subsection) would be includible in gross income by reason of the discharge (in whole or in part) of indebtedness of the taxpayer if–
(A) the discharge occurs in a title 11 case,
(B) the discharge occurs when the taxpayer is insolvent,
Title 11 is any bankruptcy case, so no, there is no inclusion in income, even if you got a bunch of 1099C forms.