Can a creditor send me a 1099 for a debt discharged in bankruptcy? or Do I have to pay taxes on debts discharged in bankruptcy?

No.

Debts discharged in bankruptcy are non-taxable.  According to the IRS website, under its Mortgage Forgiveness Debt Relief Act and Debt Cancellation of 2007 section, “Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.”

This means that if you list a debt in bankruptcy, receive a discharge, and the next year the creditor sends you a 1099 for forgiveness of that debt, the creditor is wrong, and you do not have to report that 1099 as income.

What gets a little more tricky is when a creditor sends you a 1099 right before you file.  This means that the debt is not discharged in the bankruptcy, because it was already forgiven or written off.  In this situation, you can usually protect yourself by arguing insolvency at the time of the debt forgiveness.  According the the IRS,

Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets.

This is not legal advice.  If you need help go to www.robertspaynelaw.com.

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