More details to this question:
I sold my house (127K) in a short sell approved by my lender in July 2012 for 53K and I was forgiven of the 74K that would have been owned on the loan. I filed for bankruptcy in Aug. 2012 and included my house as put of my bankruptcy case as well; my Bankruptcy case was discharge in Dec. 2012. My questions is , seeing that my house sold in July but my lawyer still included it in my bankruptcy case in August , would the 74k forgiven amount be discharge as part of my bankruptcy case as well? So would I treat the (74k 1099c) amount as title 11 at income tax time and do not file it as income. I contacted (IRS) and they are confused as well, they are saying to file (form 982 and use box 1b or 1e)? I would like to use (title 11) to make it easy on myself but do I quantify for (title 11) seeing that the 74K was forgiven in July 2012 before I filed for bankruptcy? I know that the BK court sent my lender the discharge papers of my case.
1 ANSWER
Bankruptcy Attorney serving Burbank, CA
Partner at
Law Office of Mark J. Markus
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You have just described a frequent problem that exposes the significant issues surrounding a failure to properly plan for a bankruptcy case.
If the sale took place before you filed bankruptcy, then you were discharged from any deficiency you might have owed (although since it was a short sale, there shouldn't have been any deficiency).
If the debt was cancelled (leading to the 1099 you received) by virtue of the sale, as opposed to due to discharge in bankruptcy, then it is NOT excluded from your income on the basis of the bankruptcy discharge. However, it may be excluded if you were insolvent at the time of the cancellation. This is a determination your accountant can assist you with.
Either way you should definitely file a Form 982.
If you had filed your bankruptcy BEFORE the short sale, this would not be an issue, but since the short sale took place before you filed your bankruptcy, but in the same tax year as you received your discharge, I'm uncertain as to the result.
Mark Markus has been practicing exclusively bankruptcy law in California since 1991. He is a Certified Specialist in Bankruptcy Law by the State Bar of California Board of Legal Specialization, AV-Rated by martindale.com, and A+ rated by the Better Business Bureau.
Answered on Feb 10th, 2013 at 2:59 PM