As a general rule, debts discharged in bankruptcy are not taxable, even if you get a 1099. Talk to your tax advisor (a CPA, not something like HR Block) on how to note this on your return.
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If you received a personal discharge, and the 1099C names you personally the forgiven debt need not be reported as income due to the discharge. It is necessary to file a Form 982 with your tax return. Find the form and instructions at www.irs.gov. Don't count on your tax preparer to know what to do, as many seem uninformed about this fairly common tax procedure.
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Please contact the attorney who filed your chapter 13 along with a tax professional. Make sure the tax professional is aware of the discharge in bankruptcy. At that point you will be able to know whether liability exist. Sometimes it's as simple as contacting the creditor issuing 1099 to make sure they are aware of the filing and discharge.
When a borrower receives a Form 1099-C relating to a debt discharged in bankruptcy, he or she must file an IRS Form 982. The form is entitled “Reduction of Tax Attributes Due to Discharge of Indebtedness.” The Internal Revenue Service explains Form 982 in IRS Publication 4681.
I've included links to those IRS forms in the following blog post:
Make sure to bring the 1099(c) to the attention of your CPA or tax preparer, so you don't have to amend your return later.
I am a fully-licensed Federally-designated Debt Relief Agent. I assist my clients in a variety of ways, including - but not limited to - filing petitions for relief under the United States Bankruptcy Code.
At the risk of duplicating the sound advice of the preceding lawyers, I wanted to clarify the situation a little bit. Income from the discharge of indebtedness is reportable as taxable income, regardless of whether or not its reported on a form 1099. However, the DOI income may be excluded from income if you (a) a filer in a case under Title 11 (you have filed any bankruptcy chapter), or if the forgiveness of the debt did not render you solvent (defined as debts and liabilities exceeding the fair market value of your debts). Form 982 is used when you have received a debt discharge 1099, which means that income has to be reported on your tax return, but following form 982, you may be able to exclude it from your income if you meet the exceptions. If you do meet the exceptions (bankrutpcy or insolvency), then you will have to give up certain "tax attributes", those are certain loss deductions, and/or reduce the basis of assets you may have. This is not a tax area for those who do their own return. Please meet with a tax advisor knowledgeable in this area.