Expert: Norma Duenas - California Bankruptcy Attorney - 2/5/2010

Question
I received a discharge in Chap. 7 in April, 2009.  My home was listed in the bankruptcy but was not reaffirmed.  Bank foreclosed on it in Dec. 2009 and sent me a 1099-c tax form without the bankruptcy section checked. It stated that I had a cancellation of debt for the difference in what my loan was and the FMV.  I thought that they only had rights to the property, and that the loan was discharged through bankruptcy, relieving me of the "tax issue" on the "canceled debt."  Is this not correct?  If it is, do I need to have them reissue the 1099-c correctly?  What is my tax obligation?

Answer
From the information that you provided it appears that your debt from the home was discharged as part of the bankruptcy case prior to the bank foreclosing on the home and issuing a 1099 for canceled debt. Debt that has been discharged as part of a bankruptcy case is not subject to payment of taxes for debt canceled. The loan for the home would have been discharged as part of the bankruptcy and therefore you should have no tax obligation with regard to the home. You need to contact the bank and have them correct this information. You may need to provide them with information on your bankruptcy case to ensure that the matter is corrected. If you need further information you may contact me through http://www.socaladvocates.com