rental property bankruptcy
I received a 1099-C from a lender that was inlcuded in Bankruptcy in 2008. This was a rental property?
What do I need to do? I was under the impression the debt was forgiven when the Bankruptcy was discharged and I am no longer liable.
CHAPTER 7 BANKRUPTCY…NO ASSET CASE. DISCHARGED IN APRIL 2008. I RECEIVED A 1099-C IN 2010. TOLD TO SPEAK TO CPA WHICH I CAN NOT AFFORD
You’ll need to check with your attorney and/or review the documentation of your bankruptcy case.
Normally only unsecured debts are cleared in bankruptcy. If the mortgage lender on the rental property was not part of the bankruptcy because they had a secured position and it had not foreclosed on the property yet then the 1099-C is properly included as Cancellation of Debt income unless you were insolvent on the date that the 1099-C was cut.
If the lender had foreclosed prior to the bankruptcy and had included the shortfall in the bankruptcy filing (or didn’t participate as an unsecured creditor) then they don’t cut a 1099-C to report the COD income. If they refuse to retract the 1099-C, attach Form 982 to your return along with a copy of the bankruptcy discharge showing the debt to them as having been discharged through bankruptcy.
Since this was a rental property iy is not automatically protected from COD income treatment as your principal residence would have been due to the change in the law in 2007. (You still could exclude it under the insolvency rules, however, if your liabilities were greater than your assets at the time of the COD.)
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