February 1, 2017

A common question we receive as bankruptcy attorneys at this point in the year is, “why did I receive a 1099 and what does it mean?”

There are two types of 1099 forms that are commonly received.  The first is a 1099-A.  This is not a cause for concern.  It may be issued by a creditor who held a debt, such as a mortgage debt, because they are required to file the form with the IRS to reflect it has acquired your property.  This is a purely informational return that is given to the IRS.  It does not mean you have any liability.

The second type you might receive is a 1099-C, which is a bit different.  This is issued by a creditor to the IRS and indicates a cancellation of debt.  The intent of the form is for you to list this debt cancellation as income.  This can create tax liability for you.  If you have already filed a bankruptcy and discharged the debt on which the 1099-C was based, you should be protected from tax consequences.  Federal law prevents tax consequences from being incurred when you discharge debt in a bankruptcy.  It is specifically stated as such in the United States Tax code.  Below is the link from the IRS website which details this.     https://www.irs.gov/uac/home-foreclosure-and-debt-cancellation

If you filed a bankruptcy on the debt in question and received a discharge, but still receive a subsequent 1099-C on the discharged debt, you should contact the IRS and provide them with your bankruptcy paperwork.  You cannot ignore it, because the IRS will not have record that you filed bankruptcy.  If you filed your income tax returns and do not list this income, the IRS may reject your return or audit the return because it will have received the 1099-C form from the creditor.  It is not typical to receive a 1099-C after a bankruptcy, but it can happen and it is important to follow up with the IRS to ensure there are no negative consequences. 

If the IRS does contact you indicating you did not list income on a 1099-C on a tax return which in turn creates debt owed to the IRS you can follow the link to the following form.  Part 1a of the form discusses bankruptcy discharge protection.     https://www.irs.gov/pub/irs-pdf/f982.pdf

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