Reporting mortgage loss to IRS after Ch7?!?

[gretch30]

What is the name of your state?What is the name of your state?Kentucky

Included mortgages (1st/2nd) in Chapter 7 which was discharged last year. Long story short....our payment had been $1700 a month, then jumped to $2500 a month (told this by mortgage company after discharge date....again long story....loan officer forgot to tell us a few things!) Had we known this we would have been prepared to walk away from the house immediately upon filing Ch.7. Anyway, didn't reaffirm the mortgage but continued to make payments voluntarily. Funds depleted quickly while we looked for someone to buy our house and avoid foreclosure on our credit report. I don't even understand why it would be reported as a foreclosure on our report. Shouldn't it just say "Debt discharged due to Ch 7 bankruptcy"??? Mortgage company has been reporting late payments on the credit report too. Why? We don't "owe" money...the mortgage is discharged. AND!! now they are saying that if we sell it for less (which they said we could do) that they report the loss to the IRS and we in turn get a W-9 (I believe thats the form) mailed to us and have to report the loss as income on our taxes. ??? I don't get it. Its a discharged debt. How are we responsible or liable for anything??? We thought we were doing the mortgage company a "favor" after the fact by selling the house instead of a foreclosure. ANd of course I realize we didn't do much of a favor by filing in the first place. Wish we hadn't had to....demoralizing experience. Please help me understand all this. Thank you so much.

 

[giggle50]

Why are you even trying to sell the house at a loss? This is moronic.

Go back and speak with the bankruptcy lawyer who filed for you. They will probably tell to just walk away from the house. The whole point of the bankruptcy is to give you a fresh start, not stress you out.

 

[gretch30]

Moron here...

Moronic...yes, I guess. I'm so confused now with all this "aftermath." Why are they reporting to our credit report "late payments" and "in foreclosure"? We didn't reaffirm the friggin thing. We were discharged a year ago, and now, because of this stinking situation, we'll be starting our post-bankruptcy credit history from today's date instead of a year ago. Plus, I still need my questions answered (although I appreciate your accurate opinion and advice). "LadynRed" from this website had posted something somewhere on here about how the only thing that's suppposed to be reported is "discharged due to ch 7 bankruptcy". Plus, this whole tax reporting thing really has me p.o'd. We're going to get screwed on taxes. We're going to end up owing thousands. I just don't get this. Something's not right here. And our Bankruptcy attorney is a real dud (did I say dud? I meant stud).

 

[bigun]

They likely mean a 1099C. Debts discharged in bk result in no tax liability.
Go to the IRS website and type 1099C in the search function. Theyy have a lot of information.

 

[gretch30]

Thank you! I will go do that right after this. Does anyone know if by us selling this house on behalf of our mortgage company to avoid "foreclosure" on our credit report (which shouldn't even be on there anyway, right??) if that somehow makes us liable for anything related to the financials on the house?

 

[bigun]

If the mortgage was included in the bk and you signed no formal reaffirmation agreement, you have no liability for any deficiency.

 

[gretch30]

So, then would it be fair to say that the mortgage company is just trying to screw with us or what? I don't get it. You and I say one thing, they say something totally off the map of Ch7, discharges, lack of reaffirmations....etc

The guy at the mortgage company said today....despite the discharge they would still report the loss (of selling the house for less than the combined 1st and 2nd mortgages)to the IRS and we'd be responsible for it as if it were income to be taxed against us. Crazy. But true???

 

[bigun]

They can report anything they like to the IRS. Problem is, if you'll read what the IRS actually says about debts discharged in bk as opposed to listening to a creditor with an agenda you'll see the threat is empty.

 

[gretch30]

Emotional blonde....well, brownish-blonde really. I'm looking for that info at IRS right now. Not the easiest search though. I'll probably be able to deem myself a tax authority by the time I get through the info that doesn't pertain to me. But I'm working on it. I'm pleased with your comment though. Music to my ears in fact. Your expertise is just what I needed right now. thanks.

 

[gretch30]

Smarty here can't find the IRS information that would pertain to my situation. Any searching advice beyond 1099C?

 

[bigun]

Ah heck, I've always had a weakness for blondes.
I did the html so the formating is weird but it'll get you started.

http://72.14.207.104/search?q=cache:hhj0IFhlinYJ:www.irs.gov/pub/irs-prior/f1099c--2004.pdf+1099C+and+bankruptcy&hl=en&ie=UTF-8

Page 4
Instructions for DebtorIf a Federal government agency, certain agency connectedwith the Federal government, financial institution, creditunion, or an organization having a significant trade orbusiness of lending money (such as a finance or credit cardcompany) cancels or forgives a debt you owe of $600 ormore, this form must be provided to you. Generally, if youare an individual, you must include the canceled amount onthe “Other income” line of Form 1040. If you are acorporation, partnership, or other entity, report the canceleddebt on your tax return. See the instructions for your taxreturn.However, some canceled debts are not includible in yourincome, such as certain student loans (see Pub. 525), certaindebts reduced by the seller after purchase (see Pub. 334),qualified farm debt (see Pub. 225), qualified real propertybusiness debt (see Pub. 334), or debts canceled inbankruptcy (see Pub. 908). Do not report a canceled debt asincome if you did not deduct it but would have been able todo so on your tax return if you had paid it. Also, do notinclude canceled debts in your income to the extent youwere insolvent. If you exclude a canceled debt from yourincome because it was canceled in a bankruptcy case orBox 1. Shows the date the debt was canceled.Box 2. Shows the amount of debt canceled.Box 6. If the box is marked, the creditor has indicated thedebt was canceled in a bankruptcy proceeding.Box 5. Shows a description of the debt. If box 7 iscompleted, box 5 shows a description of the property.Box 3. Shows interest if included in the canceled debt in box2. See Pub. 525, Taxable and Nontaxable Income.Box 7. If, in the same calendar year, a foreclosure orabandonment of property occurred in connection with thecancellation of the debt, the fair market value of the propertywill be shown, or you will receive a separate Form 1099-A,Acquisition or Abandonment of Secured Property. You mayhave income or loss because of the acquisition orabandonment. See Pub. 544, Sales and Other Dispositionsof Assets, for information about foreclosures andabandonments.during insolvency, or because the debt is qualified farm debtor qualified real property business debt, file Form 982,Reduction of Tax Attributes Due to Discharge ofIndebtedness (and Section 1082 Basis Adjustment).

 

[gretch30]

Hey, you're great! Thank you! I actually did stumble across that particular. I got a little confused though if, within the paragraph, it was referring to "me" or if it was explaining what a creditor or lender should do. But, I think after careful reading I understand. You report the loss to the IRS (since the mortgage company is reporting it as a loss because of you). BUT, because it was a bankruptcy loss, we are required to just report the loss on our taxes, but not claim the loss (i.e. as income). Right?

Also, I just noticed on our credit report that the mortgage company has not only been reporting late payments on us, but also states this...."In Foreclosure....Convenntional Real Estate Mortgage, Including Purchase Money First....(AND!) Real Estate Mortgage with or without other collateral. Account included in Bankruptcy"

Can they say all that??? Why in the he** didn't they just put "Discharged due to Chapter 7 bankruptcy" like the few other creditors we had?

See what you've gotten yourself into ~bigun~

 

[bigun]

Sorry, I'm not up on credit reporting as it pretains to bk.
A good credit repair site is www.creditboards.com
Maybe somebody can help you over there.

 

[gretch30]

Thanks for the great information! I really appreciate it!