Is bankruptcy the best option??

[TRC_WA]

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@Horseshoez wrote:

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To me, the benefits of a Chapter 13 over a DMP were enormous:

• I had my debt reduced by roughly 80%; it is unlikely my creditors would have agreed to that much of a reduction.
• After my Chapter 13 was discharged I had zero tax liability; had I done a DMP and been lucky enough to have a similar amount of debt reduction, I would have ended up owing taxes on nearly $200,000, and given my income grew substantially during the five years of my bankruptcy (meaning a higher marginal tax rate), I would have needed to pony up for at least $40,000 in taxes.
• When my Chapter 13 fell off my credit reports a little over a year ago all of my FICO scores shot up to at least 810; not sure if that would have been possible if I had done a DMP.

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@Horseshoez 

I'd agree.  My reports will be free and clear of all derogs related to my Feb 2017 filing by the end of the year.  I've been hovering around 670 across all 3 reports for the last year since discharge.  My CC util is around 25% give or take (0%) and I'd probably be at 700 if it were paid down... which I will have done by the end of the year.

Combine that with clean reports and I'm expecting 750+ across the board...  anything higher I'd be fine with too.

[donkort]

I meant (in reference to the 1099) that I believe one must submit a Form 1099C as an application to remove the tax liability from the "forgiven" debt in the year that the Chapter 13 is approved.  

[Horseshoez]

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@donkort wrote:

I meant (in reference to the 1099) that I believe one must submit a Form 1099C as an application to remove the tax liability from the "forgiven" debt in the year that the Chapter 13 is approved.  

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I'm pretty sure no such requirement exists.  As I understand it, the rare 1099-C sent by a creditor following a bankruptcy could lag a little, or even many months; easily long enough for a calendar year to pass; possibly more.

Long story short, for discharged bankruptcys, receiving a 1099-C is a non-event; simply file with the proper form the next time you file your taxes and the 1099-C becomes moot.

[donkort]

Of course I could be wrong.

I was under the impression that the tax liability isn't automatically taken away once you get a BK13 approval....that you have to document this, somehow, with the IRS.

Does the BK13 trustee fill out something that documents that you have a BK13?   Or must the taxpayer do the "documenting?"  I understand what I'm asking is probably obvious.  

[Horseshoez]

There really isn't any tax liablity through a Chapter 13 as nothing has been discharged yet.  Once the discharge takes place, with few exceptions, all unpaid unsecured debt is effectively canceled and there is zero tax liablity.  Some financial institutions either mistakenly or deliberately issue 1099-C forms, but as I understand it, they must indicate the debt was discharged via a bankruptcy by marking "Box 6" with a code of "A", and when a 1099-C is received, you simply file a Form 982 with your next tax return to inform the IRS you are not adding the canceled debt to your gross income on your tax return.

[donkort]

Thank you.