1099-C Cancellation of Debt

There is a common belief that a 1099-C means that the debt in question has been cancelled and that no further collection may be made by the creditor.  However, this is not the law.  A 1099-C filed by a creditor with the IRS, standing alone, does not mean that the debt has been cancelled.

Pursuant to the Internal Revenue Code, creditors are required to file 1099-C even though an actual discharge of indebtedness has not yet occurred or is even contemplated.  Rather, there may be an event “deemed” to constitute a discharge of the debt solely for purposes of determining the reporting requirement to the IRS.  The courts have held that a “Form 1099-C” is not an admission by the creditor that it has discharged the debt or can no longer pursue collection.

Pursuant the IRS regulations, there are 8 identifiable events which require the creditor to file a 1099-C: (1) a discharge of indebtedness in bankruptcy (2) a cancellation or extinguishment of an indebtedness in a receivership, foreclosure or similar proceeding (3) a cancellation or extinguishment of debt upon the expiration of the statute of limitation (4) a cancellation or extinguishment pursuant to an election of remedies (5) a cancellation or extinguishment of debt where debt unenforceable pursuant to probate or similar proceeding; (6) a discharge of indebtedness pursuant to agreement between the creditor and debtor for less than full consideration; (7) a discharge of indebtedness pursuant to a decision by the creditor to discontinue collection activity and  (8) the expiration of the nonpayment testing period.

So what does this mean?  This means that unless you have received something from the creditor stating that the debt is forgiven in addition to the 1099-C, they still have a right to collect on it unless one of the above exceptions applies.  Collection on debt where a 1099-C has been issued is happening to many people in California who have junior deeds of trusts against their homes.  They received a 1099-C from the lender and then years later someone who bought the debt starts foreclosing on the property.

So what should you do?  If you have received a 1099-C from a lender, especially a lender with a lien against your home, you should call the lender and see if they have actually “forgiven” the debt.  If they have, you need something in writing that says exactly that i.e. the creditor is not going to pursue any further collection on the debt.  In addition, if the lien is against your home, the lender must reconvey the deed of trust.  If the lender will not issue you a letter saying that the debt has been forgiven, you need to seek legal counsel immediately.  A 1099-C without further evidence stating the debt was forgiven is a ticking time bomb. 

1099-C issues are complicated and generally misunderstood.  If you have questions, seek counsel.  I see people for a FREE 30 minute consultation in my offices located in Walnut Creek and Brentwood. 

WE ARE A DEBT RELIEF AGENCY. WE HELP PEOPLE FILE BANKRUPTCY RELIEF UNDER THE BANKRUPTCY CODE. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING A DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.   © 2015

DANGER , DANGER BEWARE OF FILING BANKRUPTCY WITHOUT AN ATTORNEY

Recently there has been an increase in the number of Debtors coming into the office asking for help.  The problems are always the same.  They filed bankruptcy without an attorney and the Chapter 7 Trustee is now threatening to take their assets or their case cannot be completed because something wasn’t done correctly.  It is very sad and in most cases completely unnecessary.  In an effort to save money, the Debtors are in fact spending far more in the value of the lost assets.    

Since 2005, a bankruptcy filing without an attorney is very difficult and full of pit falls for the unwary. Among the pits falls are the Means Test required to qualify for bankruptcy, pre-bankruptcy counseling, and analysis of exemptions, preferences, inheritance and tax issues.  And these are just for starters.

Before filing bankruptcy without an attorney, you should consider the following:

1.     Pro Se Debtors are easy prey for creditors and the Chapter 7 Trustee.  The creditors and the Chapter 7 Trustee are there to protect the interests of the creditors and the bankruptcy estate.  They are not there to help you. 

2.     Pro Se Debtors are led to believe that Bankruptcy is just a fill in the blanks process.  In fact, Bankruptcy law is very complicated area of the law. Filling in the blanks without knowing the law is a recipe for disaster.

3.     Pro Se Debtors are not going to be helped by the Chapter 7 trustee.  The bankruptcy trustee will not take responsibility for educating you.    For example, if you fail to claim an exemption or claim the wrong exemption, the trustee is not going to help you.

4.     Pro Se Debtors get into trouble because they do not understand the law as it applies to their assets.  Do you understand Joint Tenancy and Tenants in Common?  Does it affect your case?  Did you recently get divorced?  Is the trustee going to object to your settlement? Do you have past due income taxes which are eligible for discharge in bankruptcy? Are your mutual fund protected as an IRA? Do you have an exemption available to protect next year’s tax refund?  Do you have the right to an inheritance?  Did you transfer money in the last year to a family member?  How much equity do you have in your car or your home?  Is it protected? 

5.     Pro Se Debtors also get into trouble because they do not understand the extent of disclosure and filing requirements. Do you know the credit counseling and financial management requirements?  Do you know what it means when the US Trustee files a 707(b) motion? Do you know how to answer discovery requests?  Do you know what discovery is?

If you need to file bankruptcy, you should seek legal counsel.  The cost of legal counsel will be a faction of the debt you seek to discharge in the bankruptcy.  It is better in most cases for you to wait a month or two and pay for legal counsel and know your case was done right versus being one of the many cases where there are problems.  Don’t be a penny wise, but a pound foolish especially when you don’t know how many pounds it will.  I see people for a FREE 30 minute consultation at my offices located in Walnut Creek and Brentwood.   

WE ARE A DEBT RELIEF AGENCY. WE HELP PEOPLE FILE BANKRUPTCY RELIEF UNDER THE BANKRUPTCY CODE. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING ASHORT SALE OR FORECLOSURE. THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.  GRIMESBKLAW.COM   (925)939-1680

Do you have a Mobile home or Manufactured Home Loan?

Is the Value of the Mobile home less than Balance on the Loan?

Valuing Liens in Chapter 13

One of the advantages of a Chapter 13 bankruptcy is ability to strip a lien on a mobile home or manufactured home loan down to the current fair market value and pay the fair market value through a Chapter 13 Plan.  Here is a common example:  Your Mobile Home has current fair market value of $30,000 and the balance on the loan is $55,000.  Because the balance is greater than the fair market value, the value of the lien can be reduced or “stripped” in a Chapter 13 with you only paying the fair market value of the mobilehome through the Chapter 13 Plan over 3-5 years instead of the contract term which may be up to 30 years. 

When does a Chapter 13 lien stripping case make sense?  First, you need to make sure the fair market value is below the balance due and owing on the loan.  This can easily be done by talking to a realtor in your area or looking at mobile homes in your park that have recently been sold.  Second, you don’t want to file a Chapter 13 to strip a lien unless you really, really want to stay in this mobile home.  A Chapter 13 is a commitment of between 3-5 years.  Third, the amount to be reduced on the balance of the mobile home loan combined with other debt needs to make a Chapter 13 advantageous i.e. you don’t want to file Chapter 13 to reduce the balance on your mobile home by $5,000.00.   

If a Chapter 13 is sounding like something that might work for you, there are several other things to consider.  First, we must make sure all of the owners of the mobile home and all of the people who signed on the loan are filing bankruptcy.  For example, if the property is owned by both you and your parents, we cannot strip off the lien on the mobile home unless both you and your parents are filing bankruptcy. If the property is owned by you and your spouse, only one of you would need to file bankruptcy to strip the lien because all community property is included in the bankruptcy case.  Second, in order to strip off the lien, we have to prove that your mobile home is not worth more than the payoff balance. 

Therefore, it is very important to understand the current value ofyour mobile home. The value does not include the location or park where the mobile home is located.  Rather, it is current the current value of the mobile home without any attachments or value added for location.

In conclusion, there has never been a better time for Chapter 13 lien stripping cases on mobile homes.  Mobile home values are still very low in relation to amount paid for most of the mobile home in this area.  This is truly the lemonade out lemons recipe if you meet the requirements for a Chapter 13.  Before you keep paying on a mobile home that may be worth one half of your current loan balance, it may be a good idea to consider a Chapter 13 and see what it can do for you.      I see people for a free 30 minute consultation at my offices in Walnut Creek and Brentwood.

WE ARE A DEBT RELIEF AGENCY. WE HELP PEOPLE FILE BANKRUPTCY RELIEF UNDER THE BANKRUPTCY CODE. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING A SHORT SALE OR FORECLOSURE. THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.  GRIMESBKLAW.COM(925) 939-1680

© 2013 Joan Grimes