Bankruptcy, foreclosure, 1099-A and 1099-C
Posted by Robert Weed / in General Information About Bankruptcy Law / 31 comments
You don’t need to worry about getting a 1099-A.
If the bank took over your house in a foreclosure, either before or after filing a bankruptcy, you will receive a copy of a 1099-A. Form 1099-A is a form the mortgage company is required to file to show that they acquired your property. It’s what the IRS calls an informational return–it just gives information to the IRS.
You should not receive a 1099-C, which is a cancellation of debt return. You should not, but you might anyway. You should not, because there are NO tax consequences for debts discharged in bankruptcy. So you are NOT taxed on what they didn’t get at the foreclosure sale. The bankruptcy protects you from that tax. Here’s the link to the IRS website that says that. http://www.irs.gov/newsroom/article/0,,id=174034,00.html.
If you get a 1099-C anyway , the IRS may later write to you and say, hey, you owe us another $XX,000.00 because of the debt cancellation. If you get that letter from the IRS, you need to write them back and say this debt was discharged in bankruptcy. Send them a copy of your papers. I’ve always seen that work. I can get you another copy of your bankruptcy discharge, if you lost yours.
(One thing I should add; I’m assuming your property is here in Virginia or another state that has similar mortgage laws. If your property is in a state like California, where the mortgage company cannot chase you after a foreclosure, in certain circumstances, it would be really important to file your bankruptcy before the foreclosure sale, not after.)
So, here’s the summary.
Get a 1099-A. Expect to get one; no need to do anything.
Get a 1099-C. Should not get one, if you do, expect to hear from the IRS.
IRS letter saying, you owe us all this money. Write back and say, no I don’t, because of the bankruptcy. There is a deadline for replying, so make sure you do write back and send them the bankruptcy info. They are easy to deal with if you reply quickly, but get stubborn if you ignore it until they try to collect the money,
(If you want, you can fill in the IRS Form for this. Check the very first box, 1a. Title 11 means “bankruptcy.” )
PS If you get a 1099-C after a bankruptcy, there should be an A in box 6. That’s explained here Letter Codes for Box 6 of the 1099. 1099-C, A in box 6, tells the IRS there’s no tax on the cancellation because the cancellation was a bankruptcy.
Excellent summary of the law on this topic.
In the event you received the 1099-C prior to filing the bankruptcy or having not filed a bankruptcy, you may still avoid tax liability thanks to the extension of the Mortgage Fogiveness Debt Relief Act. See: http://mcfarlandlawgroup.com/mortgage-forgiveness-debt-relief-act-what-it-means-for-you/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+McFarlandLawGroup+%28McFarland+Law+Group+LLC%29
Thanks for that additional comment. Steve Beck, of Blackwell and Associates in Louisiana, handles many kinds of financial issues, in addition to bankruptcy. As for me, bankruptcy is all we do.
Can you comment on how you calculate tax implications (if any) on a second mortgage amount if it is forgiven by virtue of a modification, post bankruptcy. The 2nd was not listed in the bankruptcy filing.
I’m a bankruptcy lawyer, not a tax guy, so I can’t tell you.
I can tell you there would have been no tax if you had listed it in the bankruptcy filing. And I can also wonder why it wasn’t listed. (Are you sure it wasn’t?) Leaving debts off is lying to the bankruptcy judge. Judges sometimes get mad and hurt people who lie to them.
The 2nd morgtgage was disclosed. It is listed on schedule D. For some reason, I thought the 2nd remained in effect and had to be paid. Thx
Does what you’ve stated here about the F1099-A also apply if the property was a rental property (as opposed to a primary residence)? My wife and I declared our rental property as part of our bankruptcy and then received the F1099-A.
Right. If you gave up the rental property as part of your bankruptcy, you SHOULD receive a 1099-A.
I filled bankruptcy in 2012 on my house. Today I received a1099-A on the property. If the info about the 1099-a is true then your site has been most helpful. Thank you very much for the peace of mind you have given me.
Glad to help
I filed 7 bankruptcy in July 2012 and was discharge October 2012. Rental home in maryland was not reinstated and discharged as well. Rental home was foreclosed on Nov. 2013. I received a 1099-A in the mail from the mortgage company. Here is the info on the form.
Box 2 –Balance of principle outstanding 100,000
Box 4 – FMV 127,198.07
Box 5 – Borrower is personally reliable for repayment is checked NO
I am a bit confused, Is this the correct form? What are the tax implications? Should I declare this form on my 2013 returns?
Shouldn’t I have received a 1099C, since the debt should has been canceled in bankruptcy?
Any help would be greatly appreciated.
You read my blog post upside down. There are no tax implications of a 1099-A–that’s why that’s what you wanted. On 1099-C you have to pay taxes (unless you fight them.) There should be no taxes on debts discharged in bankruptcy. So you did NOT want a 1099-C: and you didn’t get one.
I’m not a tax GUY! Consult your tax adviser!
would the same apply with a Deed in Lieu as a foreclosure with the bank telling you that you need to file a 1099c for any taxes or sewer liens, etc. that they had to pay even though you filed bankruptcy on the loan.
I’ve told you everything I know. You really need to talk to a tax guy. Sorry.
I filed bankruptcy in 2004 but I continued paying my mobile home payment and the space rent. I’m ready to move out. My question is when I stop paying the the mortgage. Should I be fixing the before I move. There is a water damage on the roof should I call the insurance company and take care of this issue. After I give a month notice to the park that I am leaving and giving up the house back to the lenders should I be responsible for future rent. Please help.
Good questions. the one I’m most worried about is your space rent. I don’t know where you live, but in Virginia, and most places I think, you still owe the space rent as long as your mobile home is in the space. Don’t know how long it will take the finance company to take it over and sell it, but until they do, the space rent is on you.
Maybe your state has a law that protects you, but giving notice to the park may not be enough; the mobile home would need to be off their pace or out of your name.
I live in Washington State, I am returning the manufacture home next month, should I continue making payments on my mortgage. My friend told me yesterday not send any payments in the house anymore, but continue paying the space rent and give them a month notice prior vacancy. I am very worried not knowing what is going to happen next. I thank for your help.
I don’t know anything about the law in Washington state. But in Virginia you would owe on the lot rent until the mortgage company actually takes over the mobile, selling it to someone new. that could take a while. I don’t think the one months notice to the park protects you; but I know nothing about whether Washington state has a law that says that.
Thank you Sir, what about the mobile home can you give suggestion. I really appreciate your help.
I’ve told you all I know. There are not many mobile homes in the area where I work; and your state may be different.
Great article. Thanks for the info, you made it easy to understand. BTW, if anyone needs to fill out a Form 1099-A, I found a blank form here http://goo.gl/fxbrNL. This site PDFfiller also has some tutorials how to fill it out and a few related tax forms that you might find useful.
Hello, very helpful information, but unfortunately, I’m still at a loss to understand my situation. My wife and I are about 18 months away from completing payments in a Chapter 13. If I understand correctly that’s when discharge will happen. Anyway, our old home sold by means of ‘short sale’ last year, and I have received 2 1099-C’s (first and second mortgages). My thoughts have been… That while I’m in bankruptcy I’m not liable. But while the home was listed in the bankruptcy, it’s debt was eliminated prior to discharge because of the sale. So does that mean we’re suddenly liable for it regardless? Or, is it possible I received the 1099-C’s in error and don’t have to worry about them or report them? Thanks in advance.
I’m glad my post was helpful; but all I can do here lay out the general rules. As to the details of your exact situation, you need to talk to your bankruptcy lawyer and your tax person. I can give you an idea of what you can talk to them about, but I can’t go beyond that.
Union Bank in 2013 filled a 1099A form showing that I had no outstanding debt as seen at http://www.secondappellatecourt.com but has continued sending monthly payment notices? In 2014 they claimed to have changed this to the IRS but did not. What do I do?
Most courts I know about say that a 1099A does not mean anything. in other words you can’t hold them to it. So most places it just doesn’t help you. Whether a judge where you are sees it the way you’d like, I can’t say.
I was granted a Chapter 7 bankruptcy in 2010. The mortgage debt on a home was discharged as a result of this action. I recently received a 1099-C for the property. Box 6, “Identifiable event code”, is G. Even though I notified the bank and the mortgage loan service company of the bankruptcy, it’s not A like is should be. Is this a problem? Should I ask the bank for a corrected 1099-C? Or should I just fill out Form 982 and check the bankruptcy box? Thanks very much for your advice.
I’m not a tax guy. But checking the bankruptcy box on Form 982 would make sense. Glad my post was helpful to you.
Hello, Mr. Weed,
my property (Fairfax, VA) got foreclosed and I got 1099-A showing loan amount outstanding 175000 and FMV of 204000. Can the lender file a deficiency judgement against me?
The lender can file a deficiency judgment against you if there’s a deficiency. The 1099 isn’t controlling, if they actually got less than the $175,000. If it was worth more than you owed, why did you let them take it form you?
thanks for your response. They took it because I could no longer pay it, rent it or sell it. I tried everything before giving it up, which was as a last resort. One last question on deficiency: can they go after assets in the US only or abroad as well?
Can, legally yes, practically ?????