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Question about 1099-c for student loan, bankruptcy and impact on SSI & taxes

Sun Prairie, WI |

My husband is disabled. He had $15,000 in student loans that were forgiven in nov. 2012. We just received a 1099-c for thisamount. I know we have to include this on our taxes. I also know there is a bankruptcy exception. We filed chapter 13 in june 2009 and this student loan debt was listed. Our bankruptcy was completed in june 2012. The student loan was not forgiven due to the bankruptcy, but was forgiven due to paperwork filed this year. Can we claim the bankruptcy exception? Also, will the 1099-c count as income for the SSI my 2 disabled children receive? thanks for any help...

Thanks for all of the replies. We are not insolvent, so that exemption does not apply. I have calls in to 2 tax attys in my area, but so far I can't get anyone to call me back. Thanks for the CPA recommendations, maybe I'll have better luck with them.

Attorney Answers 4

  1. No bankruptcy exemptions are to protect assets from creditors. Tax the 1099C to a tax preparer NOW to determine how to handle it. Good luck.

    Be sure to designate "best answer." If you live in Oregon, you may call me for more detailed advice, 503-650-9662. Please be aware that each answer on this website is based upon the facts, or lack thereof, provided in the question. To be sure you get complete and comprehensive answers, based upon the totality of your situation, contact a local attorney who specializes in the area of law that involves your legal problem. Diane L. Gruber has been practicing law in Oregon for 26 years, specializing in family law, bankruptcy, estate planning and probate. Note: Diane L. Gruber does not represent you until a written fee agreement has been signed by you and Diane L. Gruber, and the fee listed in the agreement has been paid.

  2. I would strongly urge you to speak with and obtain guidance from a qualified CPA. Even if the student loan debt cannot be forgiven using bankruptcy, there may be another insolvency exception for you to use. For the taxable year you complete a bankruptcy, it is always wise to seek help from a CPA. As for the SSI, perhaps you can post the question on another avvo section for an answer.

  3. This question involves how student loans are handled in bankruptcy, as well as canceled debt income. Many people are unaware that by getting a debt reduced, they may be facing increased income taxes. For example, if a debt was originally $100k and you settle for $20k (a 20% settlement), then from the IRS's perspective, you have $80000.00 in taxable income.
    Student loans are difficult (in some jurisdictions, nearly impossible) to discharge in bankruptcy. To do so, you usually have to commence a special proceeding -- an adversary case -- within the bankruptcy in order to obtain a ruling from the bankruptcy judge regarding the student loans. If you did not do that, then it is unlikely that the bankruptcy exception to cancellation of debt income will help.
    Fortunately, there are other exceptions to the rule that canceled debt is taxable income. If you were insolvent when the debt was canceled, you may not have tax liability. You should work with a Certified Public Accountant experienced in these matters to determine if the other exceptions apply to you.

    My answer to your question is based on the facts that you provide in your question. Additional factual details about your situation could change my answer completely. The law in inherently uncertain and always subject to change.

  4. The 1099c is a very real issue with respect to forgiveness of debt. I am not a CPA and do not give any tax advice on this matter. However, there are some issues with respect to solvency tests that even though there was a forgiveness of debt the issue of solvency, or in this case insolvency, would still not require you to pay a taxable gain. There is no presumption of tax liability with a 1099c however it should be properly addressed by a tax professional and the mere fact one has been received does not mean you have to pay tax. So if the CPA you are using thinks it is automatic in my lay opinion in the tax area I would consult another CPA to determine if you are required under the tax treatment laws to have to pay it.