1099 on Foreclosed Home in San Diego after Bankruptcy
Every January brings a slew of questions from clients and former clients that receive 1099s on real estate they surrendered and other debt discharged in Bankruptcy. 1099s that are received SHOULD NOT BE IGNORED. Ignoring a 1099 in such a situation will only trigger a tax liability! Instead, you simply need to fill out IRS form 982. Technically, sending a 1099 after discharge may also be unlawful and subject the creditor to damages. In the past, we have sued and recovered against creditors for this very conduct, so if you receive other correspondance (phone calls, bills, etc) in addition to the 1099 after your bankruptcy, let us know immediately, as you may possibly have a case! For more information on 1099s on debt forgiveness, please click here.
Finally, a word of caution. If the debt was forgiven and 1099 issued prior to filing bankruptcy, your ability to use IRS form 982 then becomes limited to the ”insolvency” or “principal residence” exceptions on IRS form 982. So its very important to file your case PRIOR TO FORECLOSURE, CHARGE OFF, etc, so that you can simply claim the bankruptcy exemption under 1(a) of the form, instead of relying on insolvency under 1(b) or principal residence under 1(e).
Written by Michael G. Doan