How Do I File a 1099-C with a Bankruptcy?
Certain financial institutions, credit unions, federal and state agencies, courts and any organization whose significant trade or business is the lending of money are required to file an IRS Form 1099-C if the debtor does not pay them as agreed and the agency, or creditor, is deducting the debt on the agency's taxes. You are not always required to file a Form 1099-C if it pertains to a debt filed in bankruptcy. It is not a difficult form to file if you are required to file one.
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Instructions
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File Form 1099-C, if you are required to file the form, for the year in which an identifiable event occurs, such as a discharge in bankruptcy for a business or investment debt. Do not further report, even if a second identifiable event occurs, on the same debt.
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Do not report a debt that is discharged in bankruptcy unless you know from the information included in your books and records the debt was incurred for business or investment purposes. Report a debt discharged in bankruptcy, if required, in the later of the year in which the amount of the debt being discharged can first be determined or the year in which the debt is discharged in bankruptcy. Do not include interest or non-principal amounts, including penalties, fines, fees and administrative costs on the form.
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Provide your telephone number in the creditor's information box. Provide a telephone number which is a central number for all canceled debts and that will ensure the debtor is connected with the correct department. File the form, if required, for debts of $600 or more. Complete the rest of the boxes on the form, as directed. Include an account number, especially if the debtor has more than one account with your agency. Check Box 6 to indicate you are reporting a debt discharged in bankruptcy. Send a copy of the 1099-C to the debtor.
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Tips & Warnings
You are not required to report interest. If you chose to do so, report it in Box 3, separately from the debt which is reported in Box 2.
Identifiable events include a discharge in bankruptcy described in Title 11 of the U.S. Code if the debt: is: a business or investment debt; a cancellation or the debt has been extinguished, making the debt unenforceable in a foreclosure, a receivership or a similar federal or state court proceeding, or when you can no longer collect the debt due to the inability to file a court action to recover the money owed; when a debt is extinguished because the creditor elects foreclosure remedies preventing the creditor from collecting the debt; a debt has been extinguished or the canceled due to probate or similar court proceedings; the debt has been extinguished because of an agreement between the creditor and the debtor if the agreement is for less than the total amount owed; he debt has been extinguished because of a decision of the creditor to discontinue collection activity, including a decision made because of a defined policy as to the collection of debts the creditor has; the expiration of a nonpayment testing period. The expiration of a nonpayment testing period applies only to certain entities. The nonpayment testing period event occurs when the creditor does not receive a payment during the testing period. Generally, the identifiable event in a bankruptcy would not be triggered by non-payment during a testing period, so would not be applicable to a 1099-C filed with bankruptcy. If you need additional information about the non-payment testing period,contact the IRS.
If you have any additional questions you can contact the IRS at 800-829-3676.
References
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