How do i file a 1099c with a bankruptcy?

If you are having financial difficulties, you may have had one or more debts forgiven or reduced. For example, you may have renegotiated a mortgage, or made a settlement with a credit card company to reduce your debt. In these cases, you will receive a Form 1099-C, "Cancellation of Debt, " at the end of the year. Normally, the amount on a 1099-C is a taxable obligation. However, if you declare bankruptcy, your 1099-C "income" is usually absolved.

The Mortgage Forgiveness Debt Relief Act and Debt Cancellation

Consider abandoning your bankruptcy petition. Under the Mortgage Debt Relief Act of 2007, many homeowners who would otherwise have to declare bankruptcy have been granted a stay. For principal residence indebtedness forgiven between 2007 and 2012, up to $2 million is excluded from taxation on Form 1099-C. If you or your lender were unaware of this legislation, and you were issued a 1099-C which prompted your bankruptcy, you should consider consulting an attorney and withdrawing your petition, as your forgiven debt should be exempt.

Assemble Your 1099Cs

Review your documentation at year-end. You should receive one 1099-C for each debt discharged, so verify that you have received all of your forms. Check each one to see if box 6, "Check For Bankruptcy," is marked. If so, you will not have to file this particular 1099-C with your taxes, as the debt has already been discharged and is not deemed taxable. If the box is left unchecked, then you will have to file further documentation to avoid taxation.

File Form 982

Although you do not have to report debt discharged in bankruptcy with Form 1099-C, you do have to inform the Internal Revenue Service (IRS) of your bankruptcy-discharged debts that would otherwise appear on Form 1099-C via Form 982. Form 982, "Reduction of Tax Attributes Due to Discharge of Indebtedness," is primarily used to report the exclusion of forgiveness of indebtedness on your principal residence. If your debt was reduced through a foreclosure, you only have to complete lines 1e and 2 of Form 982. If, however, you continue to live in your principal residence, you must also complete line 10. If you are working with Form 982, you may wish to use the services of a tax adviser, as the form can be confusing and misfiling your debt could result in IRS penalties.

Source:

"Internal Revenue Service: Instructions for Filing Form 1099C"

"Moranlaw.net: Are There Tax Consequences to Filing a Bankruptcy?"

"Internal Revenue Service: Mortgage Forgiveness Debt Relief Act and Debt Cancellation

More Information:

"Internal Revenue Service: Form 982"