Northern California Bankruptcy Lawyer

On The Bankruptcy Soapbox

The Soap Box

Pay Off Credit Cards At Zero Percent

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I’ve got news for you:

There’s a government program that lets you pay the balance on your credit card without interest and owe nothing more.

Sound like one of those snarky radio ads?

This one’s legit.

Meet Chapter 13.

Credit card interest is the killer

Here’s the refrain I hear from clients, over and over.

I want to pay off my credit cards, but the damned interest rate makes it impossible

They could pay back what they’ve charged if it wasn’t for the sky high interest rate. They want to pay what they owe.


Credit card interest, despite our national allegiance to unregulated business guided by market forces, still remains hugely more than the cost to borrow elsewhere.

But the card’s interest rate no longer applies when you file Chapter 13.

How Chapter 13 works

Unsecured debts in Chapter 13 stop accruing interest when the case is filed.

The card issuer’s  claim consists of whatever the balance is when the bankruptcy case is filed.

Credit card debt is almost always unsecured debt.  The card issuer has only your promise to repay.  There is no collateral for the debt, like there is with a car loan or a home mortgage.

So, with a stroke of the pen, or really the clank of the file stamp, your credit card debt is frozen in amount by filing Chapter 13.

You write the repayment plan

The debtor, the person who filed Chapter 13, proposes the plan which can run from as little as 3 years to a maximum of 5 years.

Full repayment is not required in Chapter 13.  How much you have to pay creditors depends on your income and your assets.

How to calculate the smallest possible repayment

We’re assuming here that you want to pay the credit cards in full, just without interest.

Take the card balances, add 5-10% of that total for trustee commission and divide by 60, the maximum number of months in a Chapter 13 plan.

There you have the  rough monthly Chapter 13 payment to pay all of your credit cards in full, without any interest.

At the end of the plan, the debt, including unpaid interest, late charges, add ons and penalties are discharged, gone, unenforceable.

But, but, but…

Note that this works regardless of how much money you make or how valuable your assets are.

Creditors are never entitled to more than 100% of their claim.

The exception is that if your non exempt assets would pay creditors in full in a hypothetical Chapter 7 liquidation, you have to pay interest to creditors at the federal judgment rate.

That interest rate these days  hovers close to zero.   It’s one fifth of one percent per year:  .22%

So if you are ready, willing and able to pay your credit cards in full, without interest, check out Chapter 13.

If paying in full isn’t really possible, talk with an experienced bankruptcy lawyer about a plan that pays creditors only what bankruptcy law requires.

Put that interest money that you save to work to provide for emergencies and your old age.

More

How Chapter 13 works

How to interview a bankruptcy lawyer

What about your credit report

Tax Deductions Hidden In Chapter 13

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taxes

Don’t miss the tax deductions hiding in your Chapter 13 plan payments.

The same, very important debts that your Chapter 13 plan pays are often tax deductible.

And you are still the person who’s paying, even if the trustee writes the check.

Deductions in bankruptcy

Let’s look at some common deductions lurking in the Chapter 13 disbursements.

Mortgage interest  If your Chapter 13 plan is catching up on delinquent mortgage payments, the claim of the lender is probably mostly interest.

Taxes  Property taxes paid through the plan should be deductible.  Likewise, state income taxes paid by the trustee are deductible.

 Business expenses  If you operate a business in Chapter 13 or operated one before you filed, you may be paying business leases, sales taxes, or vendor debt through the plan.

Get the info you need

In my experience, you have to dig out the information on deductible payments;  I have not seen lenders sending 1098’s reporting mortgage interest paid to debtors when the checks come from the trustee.

Step by step to claiming the mortgage interest deduction

But most if not all Chapter 13 trustees are on the web, and debtors can access the trustees reports of which creditors have been paid this year.

Pull up the report of last year’s disbursements and flag the payments that are deductible.

Save the printout of the trustee’s report in case of question  by the taxing authority.  The IRS will not have gotten a matching report from the lender who got the money and hasn’t reported it to you and the IRS.

How to treat 1099’s on foreclosures and short sales

Go back to prior tax years

If your plan is paying deductible expenses and you’ve been in the bankruptcy case for several years, you may want to look at prior year trustee reports.  Overlooked deductions might justify going back to amend a prior return.

Tax returns are generally amendable for three years.

Check it out

Take this post with a grain of salt, or rather, take it to a tax professional.

I am a bankruptcy lawyer and what I know about taxes, I’ve learned on the job.  But I am convinced that Chapter 13 debtors are missing legitimate tax deductions by overlooking what the Chapter 13 trustee has paid on their behalf.

More

How to find the mortgage interest paid by Chapter 13 trustee

What your tax professional should know about tax and bankruptcy

When your Chapter 13 plan struggles

Image courtesy of 401(k)calculator.org

Incorporating A Troubled Business: Work-around Or Worse?

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multi faceted issue

Facets on a gem bend light and change how we see things.

The same thing happens when bankruptcy law encounters a small business owner and the business itself.

Seen from one angle of the law, the business is a valuable asset.

Seen from another, it is nothing more than a job for the owner, having no real value without the owner.

It depends on where you stand and where the light hits.

What’s the danger in incorporating?

The question comes up when individuals do business as a proprietorship. The business may provide a living to the proprietor who works there day to day, but the accumulating debt is debt of the individual.

I wrote earlier about how incorporation could create a separate legal entity that could continue to operate during the bankruptcy of its shareholders.

My good friend attorney Doug Jacobs pointed out that under some circumstances, incorporation could be seen as a fraudulent transfer.  And that’s not good.

A fraudulent transfer is one where the entity conveying property either intends to put it beyond the reach of his creditors, or, receives less than the asset was worth in exchange, leaving the transferor less able to pay his debts.

The bankruptcy code allows the bankruptcy trustee to recapture assets transferred in fraud of creditors.

My counter argument to Doug’s point is that incorporation hardly conveys away the value of the business, as the debtor simply exchanges his outright ownership of the business for outright ownership of the stock in the corporation that owns the business.

If there is real value there, a bankruptcy trustee can reach it by dissolving the corporation.

My second argument is that before incorporation, the business was indistinguishable from the individual. The idea of “transferring” debts to the newly created corporation is facially pleasing, but incorporation cannot relieve the individual of any liability he had before incorporation.

It is an axiom of law that no agreement between two entities can bind a third: that is, the individual and his corporation cannot by agreement cut off the right of the individual’s creditor to look to the individual for repayment, even though the new corporation and the individual might agree that the corporation will be henceforth liable.

This analysis is probably more theoretical than real.

The small businesses my clients usually operate are little more than personal services businesses. Incorporation simply provides cover for the trustee who, because of incorporation, doesn’t have to shut the business down as part of his duties to preserve the assets of the estate.

Law colored by local culture

But whether you see incorporation representing a meaningful transfer or not, the issue highlights the fact that the legal culture does vary from place to place.

I practice in Silicon Valley; Doug practices in the Central Valley. Like it or not, even though the law is the same in both places, judges often bring a slightly different perspective to the bench, depending on where they practice.

For that reason, when you select a bankruptcy lawyer, you want one who knows the judges before whom your case will be heard and understands the legal culture in that community.

Image:  Nemo & Pixabay

Does This Struggling Business Have A Future?

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virus damaged business

Long after the human patients recover from the coronavirus, small businesses will still be struggling.

And long nights will be spent deciding whether to try to stay in business.

Here are some things to weigh as you consider the future of a struggling small business.

The desire to continue

The most important part of most small businesses is the owner. The owner supplies the vision and the drive that makes the business run.

If you are drained of vision and drive, then allow yourself to exit. Soldiering on just so you don’t have to admit you’re done is unlikely to have a good result.

If you’re game to continue, there are more questions.

Is the business viable

When the lock-down is over, and we creep back to the new “normal”, the next gating question is whether there’s a post pandemic market for the business’s product .

And if there is continuing demand for the product, how long is the ramp up?  What financial resources does it take to survive the ramp up? And what’s the likely volume of business to be expected over the short run? The longer run?

Reorganize for survival

The pandemic has forced change and re evaluation on all of us.  When things are already disrupted, considering change seems less overwhelming. And more essential.

Could the business continue with

  • fewer owners
  • fewer employees
  • no brick and mortar premises
  • narrower market
  • broader market
  • partnered with others

Embrace the disruption and move the pieces around the board, at least in your mind.

New debt and lingering death

Business loans seem to be at the center of the government’s recovery strategy. Distressingly, the rules about when/if those loans need to be repaid are unclear, incomplete, and subject to change.

It’s worth some thought as to whether the business can handle more debt. What is the current debt structure, and were you paying that debt down before the pandemic?

Another way to think about more borrowing is that it may be essential as a short term strategy to keep food on the table until you have more options outside of the current business.

Wind down and move on

Writing the existing  business off as a lost cause isn’t necessarily an all or nothing choice.

Perhaps you fold the existing business but remain in the same industry, as a proprietor rather than an entity, or as an entity after a personal bankruptcy.

Dangers inherent in corporate Chapter 7

Maybe, this is the time to change industries, take a salaried job, return to school, or ????

Challenges for all

The issues are complex and intertwined. And with the virus still shadowing our lives, uncertainty abounds. Allow yourself some time to consider how you move forward.

More

Collected posts on coronavirus impact on personal finances

Separating yourself from your business

Bail Yourself Out Of Payroll Tax Trouble

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Business owners with unpaid payroll taxes are in deep trouble.

Even if the employer is a corporation, the corporation’s managers are personally liable for the trust fund portion of unpaid payroll taxes. There’s no corporate shield when it comes to payroll taxes.

The trust fund portion of the tax (the amount withheld from employees’ checks) can be assessed against anyone  who could have paid that money  to the IRS.

You are in the IRS’s cross hairs, personally, if the business hands out “net” checks to employees without sending the withheld money in.  A bankruptcy discharge is no help here.

What’s the payroll tax

What we refer to as “payroll tax” is really a combination of two elements:  the employee’s income and FICA taxes that the employer has withheld and the employer’s share of FICA  (Social Security) tax.

The portion of the “payroll tax” withheld from the employee’s check are the “trust fund” portion of the payroll tax. Usually, trust funds make up about 2/3rds of the payroll tax.  The balance is the business’s matching contribution to Social Security.

The liability of corporate officers or LLC managers for the business’s trust fund liability is not dischargeable in bankruptcy.  Like other federal taxes, the statute of limitations is 10 years and the IRS is a fearsome creditor.

Earmark tax payments

If you find yourself in this pickle, you, and the business itself, can bail yourself out of trouble with an earmark of any payment you make toward Form 941 liability.

A taxpayer  who makes voluntary payments to the IRS has the right to designate to which liability the payment will be applied.  In re Ribs-R-Us, Inc., 828 F.2d 199, 201 (3rd Cir. 1987).

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An earmark allows the IRS to distinguish your payment from others, like a cropped ear lets a cattleman tell his cows from his neighbors.

It is simply a direction to the IRS as to how the payment is to be credited.  Pay voluntarily and you have the right to tell the IRS what to do with the money.

Without instructions, the IRS is free to apply payment it receives on the tax debt as it chooses.  And it chooses the manner of application that benefits it best.

Send a check for payroll taxes and if the check is not enough to pay the entire liability, the IRS applies it first to the dischargeable portion of the tax first, preserving the personal liability of the business owners for the remaining tax.

Likewise, if the IRS levies an account, they may apply the levied funds as they wish.

How to earmark

If the business finds itself with insufficient funds to pay the entire tax owed, you can reduce your personal liability for the unpaid tax by earmarking the payment.

Write directions on the check specifying how the payment is to be applied like this:  Trust Fund liability, 4th Quarter 2015 941.  Send a cover letter with the check with the same instructions.  Keep a copy of the letter for your records.

Of course, the better course of action is to remain current on payroll taxes.

Use a payroll service that won’t cut the checks unless the taxes are paid, or make a tax  deposit  with each payroll.

Dip into the money withheld from employees and you’ve taken a “loan” that lives very nearly forever.

More

The easiest business loan in town-not

Is it safe to file a corporate bankruptcy

Reorganize or wind down?

When Your STBX Files Bankruptcy: An Action Plan

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Whether the news comes by phone or mail, the notice that your soon-to-be-ex spouse has filed bankruptcy can bring fear and confusion.

You need some facts and a plan, now.

So let’s look at how bankruptcy affects a non filing spouse and how to chart a course through a STBX bankruptcy case.

Child support safe from bankruptcy

Regardless of the bankruptcy chapter, the debtor’s obligation for child support, spousal support or family support cannot be discharged in bankruptcy. When the bankruptcy is over, unpaid debts for support live on.

Not only is support non dischargeable, it has the first priority for payment from any funds distributed to creditors in bankruptcy.

In bankruptcy lingo, support is called a “domestic support obligation”. Whatever it’s called, it can’t be wiped out in bankruptcy.

Automatic stay halts only some proceedings

When a person files bankruptcy, an injunction against collection of existing debts automatically takes effect. But there are exceptions to many kinds of actions arising in family law.

Not affected by the stay are proceedings

  • to establish or modify support
  • touching custody or visitation
  • to dissolve the marriage
  • to address domestic violence
  • to collect support from funds not property of the estate.

So, effectively the division of property becomes the biggest issue affected by the automatic stay is . Proceedings in family court touching property must halt, until either the bankruptcy is closed or you get relief from the stay from the bankruptcy judge to go forward.

Community property in a one-spouse bankruptcy

Filing bankruptcy brings all of the filer’s assets, tangible and intangible, into the bankruptcy estate, potentially to pay creditors.

community property states map

The real surprise for a non-debtor spouse in a community property state, shown here in red.

Bankruptcy law brings all of the community property of the couple into the estate. Not just the half of the community that is allocated to the spouse that filed bankruptcy, but all of the community.

In return for inclusion of all of the community property in the estate, all of the creditors who could have satisfied their claim from community property can be paid through the bankruptcy.

Community claims that aren’t paid in full in bankruptcy are discharged as to the debtor and any future community property. If you are separated when your spouse files bankruptcy, what you acquire after separation is not community property under California law.

Effect of discharge on your debts

Debts that you incurred in your own name (not jointly with your spouse) are not wiped out as a personal liability of yours.

So, after your spouse’s discharge, your creditor can’t collect from community property; the non exempt community property has already been applied to debts. But your creditor can get a judgment and collect from any other assets you have.

As a matter of contract law, your separate property is not liable to a creditor for a debt standing only in the name of your STBX.

Your credit report after your spouse files

By federal law, each individual is supposed to have his or her own, separate credit file. A bankruptcy filing by your spouse should not show as a bankruptcy on your file.

credit report

However, debts for which you are jointly liable for, by contract, may have a note in the credit report that the debt was “included in bankruptcy.”

Monitor your credit report so you can challenge any erroneous reporting.

Bankruptcy and the division of property

While all the debtor’s assets come into the bankruptcy estate, exemptions allow debtors to keep certain assets to fund their fresh start. California has two, alternative, sets of exemptions that are comparatively generous.

If your STBX wants to elect the California bankruptcy exemptions rather than the standard California exemptions including the homestead, you need to agree to that choice. Without your agreement, a bankruptcy debtor in this state must choose the standard exemptions.

California law wants to protect the family home above all else, unless the spouses agree that the alternative exemption system is a better deal for the family.

property division

Your rights to a share of exempt property isn’t cut off by bankruptcy. The division of the exempt property remains the job of the family court.

Some assets, like retirement accounts, simply aren’t included in bankruptcy by law. Those assets need to divided in the dissolution.

Your action items for STBX’s bankruptcy

Most bankruptcy filings are straightforward and most debtors do their best to play by the bankruptcy rules. If you are concerned or curious about your STBX’s case, here’s a list of possible to-do’s for you, the non filing spouse.

Get copy of bankruptcy schedules

The schedules should list all the debtor’s assets and all of their debts. They are signed under penalty of perjury, so they may be of future use in family court if there are debts you didn’t know about or assets that are omitted.

Confirm you’re on the mailing list

The court will send notices about significant activity in the case, including entry of a discharge. Make sure you and your family lawyer are on the list.

Let your family lawyer know about the case

Parts of your lawyer’s work is covered by the automatic stay. Make sure to share the news. The schedules are filed under penalty of perjury. If the schedules paint a picture different than the one you know, there may be legal consequences in the divorce.

Review the schedules

Look for any assets that are missing from the schedules. See what exemptions have been claimed. You can notify the bankruptcy trustee or the United States Trustee about significant discrepancies in the schedules.

Check for missing creditors

Bankruptcy discharges only debts of creditors who get notice of the case. Make sure that all the creditors you know about are there on the schedules.

File a claim

If you are owed any support that is unpaid as of the date of filing, file a proof of claim with the court. Only creditors who file a claim can be paid through the bankruptcy. Payment is generally months or more after the case is filed.

Do you need a bankruptcy lawyer

Most likely, you have no need for a bankruptcy lawyer. However, if you are worried, or see major issues with the debt and assets listed in the case, get some input from an experienced bankruptcy lawyer. Timelines are short in bankruptcy cases and good advice can help you see your way forward.

More

How to interview a bankruptcy lawyer

Debts that survive a bankruptcy discharge

Basics of bankruptcy and the available chapters

Find The Right Cure for Your Debt Problems

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Get-out-of- debt advice and sales pitches abound.

Like this one.

But too few get-out-of-debt gurus tell you that you need a diagnosis of your financial ills before prescribing the cure.

Is the stomach ache indigestion or appendicitis?

Is it temporary upset or a life threatening money pit?

The answer makes a big difference in how you treat it.

No single prescription for debt

A doctor treating your illness wants to know your age, your medical history, other medical conditions along with your symptoms.

Same sort of questions arise if debt is what ails you.

  • Age
  • Dependents
  • Current income
  • Assets
  • Debt total

All of those factors interact to shape a treatment plan to get out of debt.

If you are on the cusp of retirement, you don’t have time to tackle big debt by cutting out frills in the budget.

If you are young, single, suitably employed, the prescription may be different.

So don’t take to heart every buckle-down-and-pay scheme you find on the internet.

Too little, too late

Most get-out-of-debt advice is better suited for living economically after you’ve solved the debt problem.

Fewer lattes, more eating at home, less entertainment spending.

Compare bankruptcy with payment plans

That may work to get out of debt if you have time, discipline, and modest debt to start with.

But the starting point is comparing your income to your debt, in light of your fixed expenses.

How big is the problem?  To bring it down, do you require a pellet gun or a bazooka?

How precarious are things

The final question is how risky is the treatment?

Think of the endless lists of common side effects and serious complications listed with every medicine you take.

When the ailment is debt, the risk is living with no reserves.  A recent study found 40% of Americans couldn’t pay for a $400 emergency without borrowing.

Four hundred dollars isn’t much in this economy.  Yet a $400 expense would imperil a huge swath of our citizens.

It’s easy to fool yourself into thinking that you aren’t likely to face an emergency.  Yet, look at this list of pretty mundane things that require a $500  fix.

None of those are so far fetched that they couldn’t happen to any of us.

So living without a financial safety net in order to pay of big debt is big-time risky.

Here’s a further discussion of  my diagnostic of your debt alternatives:  when to hold and when to fold.

Ten Debts That Follow You After Bankruptcy

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debts after bankruptcy

Some debts just follow you out of bankruptcy.

Not many but a few.

These debts continue to be collectible even after a Chapter 7 discharge.  The discharge in Chapter 13 is different and broader:  just another reason to choose Chapter 13.

1.   Family support

Regardless of what it’s called, court ordered payments for support of children or spouses

2.   Recent taxes

Income taxes for tax years  more than three years old, counting from when the return was due

3.   Taxes still assessable

The IRS ability to assess additional tax survives if the tax year was still assessable at filing

4.   Taxes for unfiled years

The clock doesn’t run on tax discharge until an honest return is filed.

5.   Payroll taxes

The trust portion of payroll taxes, federal and state:  that’s what the employer withholds from employee checks

6.   Judgments for drunk driving

Liability for death or personal injury from impaired operation of a vehicle

7.   Debts to spouse or child from divorce

Debts to your own lawyer do get wiped out

8.   Student loans

Unless you file suit in the bankruptcy and prove repayment is an undue hardship

9.   Money borrowed to pay non dischargeable tax

No paying taxes with a loan you want to discharge.

10.  Penalties to governments

This covers fines, penalties and forfeitures that are intended to punish not compensate

Non dischargeable if….

Three additional categories of debts survive bankruptcy only if the affected creditor successfully jumps through some legal hoops in the bankruptcy case.

Debts incurred by fraud; debts for conversion or breach of fiduciary duty; and debts for deliberate injury to person or property require the victim to file suit and prove the operative facts.

There’s a short period for filing a non dischargeability action and the presumptions operate in favor of the debtor.  But if the creditor can establish the bad behavior of the debtor that created the debt, public policy says we don’t want to shelter bad actors.

It’s important to understand that the debt must have been incurred by the bad behavior;  just trying to evade payment of an honestly incurred debt doesn’t make it non dischargeable, in most instances.

Liens survive unless…

How to get rid of liens through bankruptcy

While a bankruptcy discharge wipes out your personal liability for discharged debts, a lien on property you owned when you filed bankruptcy continues to be liable for the debt.  So you aren’t liable but your property can be seized to pay the debt.

Think of your home loan:  your discharge keeps the lender from suing you after bankruptcy for a money judgment, but it doesn’t keep the lender from foreclosing on your house if you don’t pay after bankruptcy..

After bankruptcy, as long as you continue to pay on a secured debt, the creditor is generally happy to take your money and leave you alone.  If you change your mind, or further financial troubles loom, you can walk away from the liened property, losing only the property.

An experienced bankruptcy lawyer can walk you through the bankruptcy discharge and the landscape after your case is over.

More

Interview questions for hiring a bankruptcy lawyer

What to do about tax liens

Reaffirming a car debt

 

Doing The Means Test Yourself

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Posts on internet bankruptcy boards feature individuals who have “filled out the means test” and then proceed to announce their conclusions.

Given the uncertainties in the legal community about how to apply the means test, I can’t imagine a non lawyer learning anything reliable from trying to do this themselves.  As a certified bankruptcy specialist, I end up thinking, and rethinking, treatment of income and expenses on the means test. I teach this stuff to other bankruptcy lawyers, and still it’s a challenge.

Yet the results of the means test determine whether you get to choose which chapter of bankruptcy you want to file, or how much you have to pay if you file Chapter 13.

Means test rat’s nests

The tricky issues include how to deal with income from non filing spouses; from roommates or extended family members; shared custody situations; changing income issues, and how to handle business expenses for the self employed.

One bankruptcy appellate panel recently decided that the judges who drew up the form did it wrong!  That really helps.

You have to parse out income “received” but not “derived” during the look-back period and figure out how to report children where custody is shared.

Then there is the dispute on the deduction side about ownership allowances for paid-for cars; operating allowances for older cars; debts associated with property you’re surrendering, and just what part of your telecommunication expenses go on the form.

And how do you treat the costs of delayed health care needed in the future?  Do you divide that cost over the life of a Chapter 13 plan, or over 12 months, or….?

Can you swear to that?

I cringe when I ask a client to sign this form, as they cannot possibly validate all of the entries on the form, given the complexities of the law.

While I won’t say “don’t try this at home”, I am certain you should draw no conclusions about the means test and your eligibility for Chapter 7 based on your efforts to take the test.

Get an experienced bankruptcy lawyer involved.

Read more

Means Test Misunderstood

Means Test Is Paper Tiger Here

Means Test In Chapter 13

Image courtesy of Pixabay.

Bankruptcy Discharge Slays IRS Form 1099

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In a duel between a tax Form 1099 and a bankruptcy discharge, bankruptcy wins every time.

The prize?  no tax on debt discharged in bankruptcy.

So, if you’ve already gotten your discharge, the creditor’s 1099, with your social security number on it, is no threat.

But you do need to file another form to secure the prize.

Bankruptcy is exception to tax

Normally, when an obligation is forgiven, the tax code treats the amount of forgiveness as if it were income.  And income is exposed to tax.

Insolvency is another exception to tax on forgiven debt

But forgiveness in bankruptcy in the first exception to the rule.

Debt forgiven in bankruptcy is not treated as income.

Creditor is clueless

So, if bankruptcy is outside the IRS rule, why are you getting a form 1099?

Because there’s another rule, requiring creditors to report to the IRS, just the way your employer is required to send the IRS your W-2.

And seemingly, the creditor can’t figure out that the reason its claim is worthless is because of the bankruptcy discharge.  So it’s easier for the creditor to just send out Form 1099, and make it your problem.

Fixing the 1099 problem

The solution is simple:  file IRS form 982.

Title 11 is the part of the United States Code on bankruptcy.  Cases are filed under different chapters of that title

Form 982 is your rebuttal to the report that you have taxable income because your debt was forgiven.  Check the very first box on the form claiming the bankruptcy exception.

This debt is excluded from income because of  Discharge of indebtedness in a title 11 case 

The IRS provides a set of instructions for filing  your “get out of tax” form.  Form  982 Instructions.

Other tax consequences of discharge

If you have real property, you may have to reduce your basis in assets by the amount of debt discharged in your bankruptcy.

But thankfully, there is an exception to this rule too:  no reduction in basis is required with respect to your principal residence claimed exempt in your bankruptcy case.  IRC 1017(c).

Tax action plan

So there you have the skinny on form 1099 and your bankruptcy discharge.

Bankruptcy has other tax implications:

Taxes dischargeable in bankruptcy

Unfiled tax years are never dischargeable

Chapter 13 gets an interest-free tax repayment plan

Your accountant needs to know about your bankruptcy

What to do with a flat-wrong 1099

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Redwood City, CA 94063
Phone: (650) 694-4700

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