Insolvency filing......

[mrstucker]

What is the name of your state (only U.S. law)? MO
How do I file insolvency as an individual?

 

[LdiJ]

What is the name of your state (only U.S. law)? MO
How do I file insolvency as an individual?

You don't "file" insolvency. You are either insolvent, or you are not. I assume you are not talking about bankruptcy?

 

[mrstucker]

No, I'm not. I just got a 1099C in the mail that says the amount would be forgiven if I were insolvent. How do I go about proving that I was insolvent though?

 

[LdiJ]

No, I'm not. I just got a 1099C in the mail that says the amount would be forgiven if I were insolvent. How do I go about proving that I was insolvent though?

You make a net worth statement. Assets on the right, liabilities on the left. If your liabilities are higher than your assets, then you are insolvent by the amount that your liabilities exceed your assets.

The net worth statement should reflect the way things were BEFORE the debt was cancelled.

Example:

House: Fair Market value 100,000 Mortgage balance 150,000
Car: Fair Market value 10,000 Principal balance 12,000
Credit card 1 3000
Credit card 2 2000

Total assets: 110,000
Total liabilities: 167,000

You are insolvent in the amount of 57,000

The car gets repo'd because you cannot make the payments. The lender sells the car for 5000. You get a 1099-C for 7000. Since you are insolvent by 57,000 the 1099-C income is not taxable.

However, this is one instance where you really need a tax professional to prepare your return, and it needs to be a tax professional who is experienced with cancellation of debt.