One of the most common reasons that people file for bankruptcy is to stop foreclosure actions. Rubin & Associates help DFW area residents and property owners with cases like these quite often.

Every once in a while, stories pop up about people who abuse the system, and one of the most extreme cases we have ever heard hit the news last month. Reported in major publications like Fox News and the New York Post, a man in New York has avoided eviction for more than 20 years by filing multiple bankruptcy cases.

According to the article at the New York Post, the man bought a Long Island home for $290,000 in 1998 and made his first mortgage payment to his lender, Washington Mutual – and that’s the only payment he ever made. He has claimed bankruptcy seven times and filed four lawsuits over the years, all focused on letting him stay in the home. (more…)

It’s tax season again, and with the COVID tax delay, taxes are almost due. Every spring, we hear lots of questions from potential clients about the tax implications of filing for bankruptcy. It’s a fairly simple answer – it depends on whether the debt was discharged in bankruptcy or just forgiven by the creditor.

Tax implications of debts discharged in bankruptcy

If your debt is discharged as part of your bankruptcy case, there are no income tax consequences. Since the debt is excluded from your gross income, you do not have to worry about anything with the IRS.

Many times, you will receive a 1099-C form , which is for debt that has been canceled or forgiven. If your receive one, you will just need to file Form 982 with your taxes, which lets the IRS know that the debt was in fact discharged in your bankruptcy case.

What about debts cancelled outside of bankruptcy?

If you have borrowed from a commercial lender and that lender later forgives or cancels your debt, you will most likely have to include the canceled amount as income when you file your taxes. Typically, loan proceeds do not count as income because you are obligated to pay back the loan. Once the loan is canceled or forgiven, that makes the loan count as income.

If you are in this situation, your lender will have sent you Form 1099-C, “Cancelation of debt to the debtor.” They are required to send this form by the 31st of January of the year following the year when your debt was canceled.

The unpaid portion of your loan will be reported as income, unless:

• You are insolvent when the debt is canceled.
• You operate a farm and the debt results from your farm, more than half of your income from the last 3 years was from farming, and the loan was owed to an agency regularly engaged in lending.
• It is a non-recourse loan
• It is excepted by the Mortgage Debt Relief Act of 2007

If you are in a rough financial spot and you are considering bankruptcy – but wondering about the tax implications – call us today at 214-760-7777 and schedule a free consultation. We will walk you through the various parts of bankruptcy so you fully understand how things will work.

You have just filed your bankruptcy case, and now you are on pins and needles. You’ve gotten all the paperwork together, answered all our “lawyer questions”, and filed all of your schedules with the court. What happens now?

Actually – not much… Most of the work has already been done at this point.

It is important to stay engaged, though. You do not want to hand everything to your attorney and then go silent.

We get the “what next?” question all the time, so we thought we would put together this list of 5 things to do AFTER you have filed your bankruptcy case.

1. Ask us questions

If you don’t understand something, let us know – there are no stupid questions! Let us know you are confused and we will take the time to explain things.

2. Open all your mail

Most of our clients are tired of collection notices, so they are not quick to open their mail. Make sure you are opening everything so you will see anything we send to you. We will send you a copy of everything so you know what is going on and what we are doing for you.

3. Respond quickly

If we ask you for information or any documents, don’t make us wait. Bankruptcy cases typically move pretty quickly, so we do not want a delay to complicate your case.

4. Keep us posted

Major life events can affect a bankruptcy case. If you have changed jobs, lost your job, had a major accident, or moved, you need to let us know.

5. Don’t worry!

Bankruptcy is confusing and scary – but our staff does this all the time. We have years of experience with bankruptcy cases, and most cases have no unexpected complications.

We are always here to help! If you have any questions or concerns, or you just need something explained, give us a call at 214-760-7777 and we will explain whatever you need.