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By: Steven P. Taylor, Law Office of Steven P, Taylor, PC
This time of year I will get a large amount of calls from 
my bankruptcy clients regarding 1099s and wanting to know if they will owe taxes as a result. The answer is probably not, but maybe. Generally, you can potentially receive either a 1099-A or a 1099-C from a creditor after you receive a bankruptcy discharge. You should not receive a 1099-C, which is a cancellation of debt return. You should not, but you might anyway.
What is a 1099-A: Relating to the acquisition of property by a lender, Form 1099-A DOES NOT mean you have cancellation of debt (“COD”) tax. Say the bank bid their judgment at the sheriff sale and became the owner of your house, 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. It tells the IRS the principal outstanding on the loan and the amount (presumptively the fair market value) for which the lender acquired the property back (in partial or whole satisfaction of the debt that was owed). Again, all it means is that the part or all of the debt has been satisfied with the acquisition of property.
Tax Treatment: The amount for which the lender acquired the property back is treated as a sale. The 1099-A can potentially lead to capital gains tax. For example, Debtor has rental property that has a basis of $50,000.00. Debtor lets the property go in a bankruptcy , get a discharge and receives a 1099-A asserting FMV of $100,000 and debt of $150,000. The excess of the debt over the FMV is cancellation of debt income that will be reflected in a 1099-C down the road probably (see below). The sale of the property for $100,000 realizes a gain over the basis ($50,000) of $50,000 which is taxable. Note that if the property was the principal residence of the Debtor, the capital gain may not be taxable under Mortgage Debt Relief Act of 2007. (Now expired effective 12/31/2013) or depending on the holding period ($250k/$500K)
What is a 1099-C: The issuance of a Form 1099-C means that some amount of debt has been cancelled and is taxable income unless excludible. So what do you do? Well, IRS Regulations require you to report the cancellation of debt, whether or not it is ultimately taxable. To exclude the cancellation of debt income from taxable income, you must file IRS Form 982. Will you owe tax? Well, if the debt was:
1. was discharged in bankruptcy; or
2. was incurred to purchase, construct or substantially improve your principal residence. This is the result of the Mortgage Debt Relief Act of 2007. (Now expired effective 12/31/2013); or
3. If you were “balance sheet insolvent” at the time of the cancelation of the debt. Balance sheet insolvent is very simple: If the value of your obligations is greater then the value of your assets (including IRAs) you are “balance sheet insolvent.” The trick here is to create a paper trail so that when the IRS comes a-knocking on an audit a couple of years from now, you will be able to demonstrate that insolvency,
Then you will not owe any ordinary income tax liability.
Tax Treatment: If you get a 1099-C and fail to include it in your tax return , the IRS may later write to you and say, hey, you owe us more $$$ 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 and send IRS Form 982. Check the very first box, 1a. Title 11 means “bankruptcy.”
Last Note: My practice is limited to bankruptcy issues and the above information is general only (within my experience) and is not meant to constitute legal or tax advice appropriate for your situation. In addition, this information is subject to change and is not guaranteed accurate. Before you make a move with regard to these matters, visit the IRS website or contact your CPA for the latest 1099-C tax information and for help with your specific tax situation.
Filed under: Bankruptcy Tagged: 1099-A, 1099-C, bankruptcy, cancellation of debt, capital gains tax 
Assignment of Mortgage Promissory Note 
It is generally the rule in Florida that the transfer of a mortgage note transfers with it the related mortgage. The mortgage note is regarded as the principal item with the mortgage being regarded as a mere accessory. 6 Fla. Jur. 2nd, Bills and Notes, Section 123. Hence the adage "the mortgage follows the note." . The Restatement (Third) of Property provides in Mortgages section 5.4(a) (1997) that "[a] transfer of an obligation secured by a mortgage also transfers the mortgage unless the parties to the transfer agree otherwise." Florida law is apparently in accordance with the Restatement. The stated objective of the Restatement is to avoid economic waste to the lender and a windfall to the borrower if the note and mortgage are split rendering the mortgage note as a practical matter unsecured. The Restatement cites the case of Carpenter v. Longan, 83 U.S. 271 (1827) which held that "[a]ll the authorities agree that the debt is the principal thing and the mortgage an accessory."
The Restatement's exception provides that a transfer of a mortgage note is possible without the transfer of the mortgage if the parties so agree, but the effect of such a transfer would be to make it impossible to foreclose the mortgage unless the transferor of the mortgage note is made the assignee's agent or trustee with authority to foreclose on the behalf of the assignee of the mortgage note.
Assignment of the Mortgage
The opposite situation is presented if a mortgage is transferred without the transfer of the mortgage note. The apparent rule in Florida is that an assignment of a mortgage without an assignment of the related mortgage note is deemed a nullity and creates no right in the assignee because a mortgage is a mere lien incidental to the obligation it secures. 37 Fla. Jur. 2nd, Mortgages, Section 511. See e.g., Sobel v. Mutual Development, Inc., 313 So.2d 77 (Fla. 1st DCA 1975). Vance v. Fields, 172 So.2d 613 (Fla. 1st DCA 1965).
(305) 891-4055 - Jordan E. Bublick is a Miami Bankruptcy Lawyer with over 25 years of experience in filing Chapter 13 and Chapter 7 Bankrkuptcy Cases.
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A recent decision in the U.S. Bankruptcy Court for the Western District of Michigan[1] granted a Motion filed by the Chapter 7 Trustee requesting turnover by the debtor of proceeds of a life insurance policy that were used by the debtor to pay the burial expenses of her father.
In the case, the Chapter 7 Trustee filed a Motion to Compel Turnover of Non-Exempt Assets seeking $9,698.90 from the debtor, including non-exempt cash, jewelry, a whole life insurance policy, and the proceeds from an insurance policy on her father's life. The debtor disputed that she was required to turn over the $7,208.84 in life insurance on her father's life, who died two days after her bankruptcy filing. The debtor argued that she used the proceeds to pay for her father's burial, and that she was not a beneficiary of the policy, but rather the owner. Read More ›
Tags: Chapter 7, Western District of Michigan
I will be attending the American Bankruptcy Institute's Student Loan Debt Crisis Symposium being held in in Washington DC on May 30. The timing of this event could not be better. The student loan problem keeps getting worse and it is high time that bankruptcy practictioners create workable solutions for the millions of Americans who are trapped under the weight of these debts. The common belief that student loans are never dischargeable is absolutely not true. What is true is that Courts are looking at these debts with fresh eyes and the lenders have created new options to help struggeling borrowers.
If you are attending this conference or if you have questions regarding student loans please contact me.
Sam Turco
Chapter 7: Time To File? David Siegel: When would somebody want to file a Chapter 7 bankruptcy as opposed to not filing at all? What is the reason why someone would file a Chapter 7? Jesse Barrientes: I guess there are a lot of different reasons. One would be for example if somebody filed a+ Read MoreThe post Bankruptcy & The Right Time To File appeared first on David M. Siegel.
A former Georgia church leader is charged with numerous counts of fraud while using his position in the church to execute his fraud schemes. Annamalai Annamalai, also known as Dr. Commander Selvam and Swamji Sri Selvam Siddhar, was leader of the now defunct Hindu Temple of Georgia. He allegedly charged followers for services while using […]
If you’re in over your head with student loans and are looking for help, you probably want the lawyer who knows the most.
Someone who’s been practicing law for awhile would be a good idea. Definitely someone who’s got experience working through tough student loan issues.
But student loan law is a relatively new name for the field, with lawyers cropping up over the past few years to tackle the issues confronting those who have been beaten down by the educational finance system.
Many of have come up through the ranks of consumer bankruptcy, debt collection harassment, and lawsuit defense work. They’ve worked for years to hone their craft, and have brought those skills to the table of student loan resolution.
They’ve got white knowledge. And it makes the difference between a competent student loan lawyer and one who can really knock it out of the park by finding every possible option for you.
What Is White Knowledge?
I first heard the term white knowledge in the book Neverwhere by Neil Gaiman. In it, he mentions the term as being, “like white noise, only more useful.” And the more I thought of it, the more I realized that it’s the thing that we’re all looking for when we hire someone to help us out with a problem.
When I take my car into a mechanic, I want him or her to back able to stick a hand into the engine compartment and instinctively know where to find a particular hose or wire.
My dentist should be able to look in my mouth, see I haven’t been in a dental chair for awhile, and instinctively reach for the dental scaler.
An accountant should be able to punch numbers into a calculator without looking down at it.
That’s white knowledge. It’s information acquired without effort, as if by osmosis and sheer exposure to a field.
It’s a level of understanding borne of constant practice, and it’s where your lawyer adds value to the process.
You can’t teach it, at least not in the classroom. It’s assimilated into the brain, the heart and the bloodstream.
What Does A Lawyer Look Like With White Knowledge?
When your lawyer:
- understands the ways in which bankruptcy works in the real world (even if you can’t wipe out your student loan debts)
- can quote sections of the Fair Debt Collection Practices Act and Fair Credit Reporting Act by heart
- can reach into his or her hard drive for a variety of samples of discovery requests for student loan lawsuit defense cases
- can flip through a Pooling and Servicing Agreement and instinctively understand the roles of the parties to a student loan securitization scheme
That’s all white knowledge.
White Knowledge Sees Solutions Without Blinders
The lack of this exceptional (and unteachable) skill is why so many bankruptcy lawyers hear about student loan debt and say, “nope, can’t help you.”
And why many collection defense lawyers shake their heads and tell you there’s no defense to a student loan case.
They know one field of law to the exclusion of all others. If your problem doesn’t fit neatly into their preconceived notions of what can and cannot be done then you’re shown the door.
For some fields of law, that’s fine – but not when it comes to student loan lawyers. We’re operating at the crossroads of a number of different legal and regulatory systems, providing solutions that didn’t exist even a few years ago.
It’s a minefield of complexities, and a lack of white knowledge could mean the difference between relief and continued frustration.
If you’re looking for a student loan lawyer, you’re going to need to take some time to get the right one. But if you look closely, you’ll be able to spot the one who’s got white knowledge.
And when you do, stop looking for help. Because if there’s a solution out there, that lawyer will be able to find it for you.
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