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Received a Form 1099-C from bank that forgave a mortgage we were no longer obligated to repay.

Daytona Beach, FL |

After our chapter 7 bankruptcy was discharged, we ended up in foreclosure. Then, much to our surprise, the bank sent us a letter forgiving our second mortgage of $89,000. We just received a 1099-C tax statement for that amount. The statement actually states "Borrower was personally liable for repayment of debt." However, we did not sign to recommit on either of our mortgages during bankruptcy. How is it that we, via bankruptcy, are not responsible for repayment of this debt, and at the same time, the bank refers to us as personally liable for repayment of the debt? Are we actually expected to pay tax on the amount?

Attorney Answers 4


You need to take the 1099-C to your CPA or accountant who will know how to handle it with the IRS. There is a Form 982 which he/she will prepare that advises the IRS that you should not have to pay any income taxes on the "forgiven debt" because you received a discharge in bankruptcy. Bankruptcy is one of the exceptions to people having to pay income tax when a creditor forgives , settles, or writes off a person's debt. Remember that the IRS will receive the 1099, so do not ignore it.

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I agree with my colleague. The banks have been doing this lately.

The above is general legal and business analysis. It is not "legal advise" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also terms and conditions item 9, incorporated as if it was reprinted here. Please visit my web site: for more information about my services.

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Take this 1099C to a tax preparer ASAP along with your bankruptcy petition and your Discharge notice. If you did NOT reaffirm the debt, it was wiped out in the BK. 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.

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Can a bank issue a 1099-C after bankruptcy....
1. Is it legal, yes.
2. Is it an error, no.
3. is it required, no.

If anyone actually reads the instructions and IRS regulations regarding 1099-C's, you will learn that a lender is not "required" to issue a 1099-C on debt discharged in bankruptcy, but it is not forbidden from doing so. As such, it is NOT an error.

A 1099-C is merely a reporting document. All it does is tell the IRS that a potentially taxable event occured. If you recieve a 1099-C, and assuming the debt was discharged in bankruptcy, the debter need only file IRS Form 982, check box 1(a), write the amount in box 2, and bam, no tax liability on discharged debt.

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