This came up in an online bankruptcy forum and I am wondering what the correct answers may be to the questions that were posted there.
The poster wrote that he filed a Chapter 13 bankruptcy that was completed in
2012, and he received the final discharge. The Chapter 13 did not require a
100% payoff of his debts. He received a 1099-C cancellation of debt from one of his creditors (Bank of America) for the unpaid balance of the debt that wasn't paid through the Chapter 13. The BOA debt wasn't a mortgage, and I assume it was a credit card debt or possibly a personal loan.
His question is about how to file his 2012 federal tax return to reflect this 1099-C and any other 1099-C's that he may receive. The assumption is that he does not have to pay tax on any of the cancellation of debt "income" because he was insolvent as evidenced by the Chapter 13 bankruptcy final discharge.
Does he need to report any 1099-C amounts on his tax return as income, and then include a statement that he was insolvent? Or, how else should he handle this and any other 1099-C's that he receives? He said he usually files his own tax returns electronically. But now he is wondering if he would have to file a paper return this year in order to handle the 1099-C and insolvency issue, and in order to be able to attach any needed documentation such as his Chapter 13 discharge. Is that correct, or is there a way for him to still file electronically this year.
Thanks for any help or suggestions.