Expert: Terry Leeders - 11/4/2007

Question
"My husband and I filed Chapter 7 BK back in 2001.  In that BK we had a private education loan through a lender called P.L.A.T.O.  We listed this creditor in the BK and our lawyer told us that it should be discharges because it was a private loan.  This BK took place in 2001.  I lost my original paperwork to prove that this loan was discharged because hurricane Katrina damaged a lot of our files and paperwork.  I have ordered a set through the county courthouse, but it will take a few weeks to get here.  My main question is....this lender reported this loan amount of $16,000.00 to the IRS on a 1099 against my income for 2005.  I just received a letter from the IRS stating that I owed them $4,600. in back taxes because I didn't claim this $16,000. on my 2005 taxes.



What can I do now?  I never received any notice, phone calls and any correspondence from this lender to indicate that this loan still existed.  I understand that if this loan were indeed funded by the government, then it is not dischargeable in a BK, but it was a private loan.  I need help with this.  That loan was for my husband to go to an IT tech college.  Not even a major university.  Another strange thing is that my husband received nothing from the IRS, but yet this loan and BK is his problem too.  Does that make any sense?  I am a college student on a pell grant and then this come up in the mail.  I didn't even receive any notice about the 2005 taxes until the other day.  So there is interest tacked on as well.



Any advise you could give would be so greatly appreciated!  Thank you so much!"

Answer
Generally student loans are non dischargeable. Often, the government also backs the private loans too.  If you are hit with a tax bill, perhaps they forgave debt, which thus creates a taxable event. In either event, i would speak to your bankruptcy lawyer and your accountant to help you get to the bottom of this.