Creditors and Bankruptcy/Bankruptcy and the irs

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Expert: Regan Shinski - 12/21/2009


Question
I have a business loan from the sba and have gone out of business due to the economy. The loan is attached to my home which I am losing in Jan 2010. Obviously the sba lender will not be able to attach the house. The loan amount is approximately 135K and friend of mine said I would have to pay taxes on the 135 K just as if it was income. Is that true. Also if I have other debt relief through bankruptcy will I have to pay income tax on that debt relief?

Answer
Lenders can issue you a 1009-C for the forgiveness of debt.  How it relates to your taxes depends on your entire tax return and tax situation but that form is often issued and sent to the IRS.  It would have to be addressed.

In general, debt discharged in bankruptcy is not subject to a 1099-C.  However, income taxes are NOT discharged in bankruptcy.  If you are set on bankruptcy, it MAY be best to try and discharge the 135k before the 1099-C can be issued.

Good luck,
Regan

p.s.  Regarding your questions in the feedback:

You really should consult with two bankruptcy attorneys.  Most give free consultations.  The issue of foreclosure is one aspect that really does depend on the state you reside in.  I believe it would be cleaner and safer for you to discharge the debt BEFORE the 1099-C is issued.  This typically is not issued until the home is resold but I suppose they can "forgive" the debt at anytime.  IRS debts are typically not forgiven but they can be in some situations.  This is why I really think you should see an attorney that can discuss your individual situation.  Good Luck!

Creditors and Bankruptcy

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Regan Shinski

Expertise

I can answer questions on collections, repossessions, bankruptcy, credit repair, credit counseling, FICO scores, credit planning, and the cause and effect of credit related decisions. I can also answer questions on collection settlements and preparing to sue your creditors for false debts and credit reporting.

Experience

Fifteen years ago I was financially devasted due to severe health issues. I filed bankruptcy, had a foreclosure, car repossession, tax lien, and ruined credit. I immersed myself in credit law. I settled dozens of accounts and had them removed to improve my credit. I personally sued four creditors and collection agencies and won cash settlements for their false reporting on my credit reports. Since then, I have completely recovered and have nearly $100,000 in revolving credit lines and perfect credit. I have owned a credit repair company for the past five years and have an additional three years of specific work in the collections and debt management industry. I am fully versed in the Fair Debt Collection Practices Acts (FDCPA), Fair Credit Reporting Act (FCRA), and have used them successfully in collection settlements and lawsuits for myself and others. I am also familiar with and abide by the Credit Repair Organizations Act (CROA). I have deleted or helped delete literally hundreds and hundreds of derogatory items from consumers' credit reports and helped negotiate many settlements with collection agencies and creditors. I have also advised people on bankruptcy at any stage. In the current credit market, I have successfully advised numerous people on how to obtain credit and how to negotiate for better terms.

Education/Credentials
BA - University of Minnesota

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(private)

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