How to confirm if a debt was discharged in bankruptcy

2 minute read • Upsolve is a nonprofit tool that helps you file bankruptcy for free. Think TurboTax for bankruptcy. Get free education, customer support, and community. Featured in Forbes 4x and funded by institutions like Harvard University so we’ll never ask you for a credit card. Explore our free tool

A discharge order that tells your creditors they are forever prohibited from asking you to pay your pre-bankruptcy debts ever again.

Written by Attorney Andrea Wimmer. В
Updated December 28, 2020

Having your debts discharged means that the court entered a discharge order in your case. The discharge (orВ discharge order) is your main goal in filing for bankruptcy protection. It is an order from the court – entered pursuant to the provisions of the Bankruptcy Code – that tells your creditors they are forever prohibited from asking you to pay your pre-bankruptcy debts ever again. Whether you file underВ Chapter 7В and your discharge is entered approximately four months after your case is filed, or you filed underВ Chapter 13В and your discharge is entered after you complete your payment plan, getting your discharge is what protects you even after your bankruptcy case is closed. In other words, a discharged debt is a debt that the creditor can’t try to collect from you.

The court will automatically send a copy of the discharge order to all of the creditors on your mailing list. At the same time that happens, the court will send you a copy as well. Since this is what you’ve been working towards, it’s important to keep this document in a safe place where you can find it again in case you need it. You do not have to send the discharge to your creditors. By now, your creditors should have stopped contacting you long ago and the only reason you would ever need to send them a copy of your discharge is if they didn’t get the copy from the court, for whatever reason.

You will not receive a separate notice from each of your creditors that your debt has been discharged. We do recommend, however, that youВ get a copy of your credit reportВ about a month after your discharge is entered, so you can make sure everyone is correctly reporting your discharge. If a pre-bankruptcy debt does not show up as discharged on your report,В you should file a disputeВ with the credit reporting agency to correct this. At this point, it is not practical (nor effective) to contact your creditor about this as they will (or should) have a big flag in their system that they are legally prohibited from trying to collect from you. Therefore, even if you call them, they might not speak to you about your account at all, even if all you are trying to do is verify that the debt has been discharged.

The discharge does not list out each one of your creditors individually – it applies to them all across the board and is limited only by the non-dischargeability provisions in the Bankruptcy Code. This means that evenВ creditors who cannot be dischargedВ (such as student loans or some tax debts) will receive a copy of the discharge. For those creditors, the discharge tells them that theВ automatic stayВ has been terminated and they can resume collection activities from you.

If you have tax debts that are more than three years old,В they may have been discharged. Since a lot of factors go into determining whether your tax debt was discharged, your best bet is to wait 30-60 days, then contact your local IRS office. By then, their system should have updated throughout and they should be able to tell you which of your tax debts, if any, have been discharged. If you had a taxВ lienВ filed against you for any of the discharged tax years, you should also ask them about releasing the lien at that time.

Conclusion

Getting your debts discharged is the point of your bankruptcy case (there may be others, but it’s definitely the main one). Getting the discharge is an automatic process assuming you complete all the necessary steps of the process and the court will notify your creditors as soon as it has been entered. It does not mean that your case has been closed and you continue to be obligated to assist the trustee in the administration of your case. If you don’t, the trustee can ask the court to revoke your discharge which would then allow all of your creditors to start coming after you again (making the entire bankruptcy case basically pointless). You should continue to monitor correspondence from your trustee and the court, and keep both updated if your mailing address changes to avoid any unnecessary hiccups.

How to confirm if a debt was discharged in bankruptcy

Debt discharged in bankruptcy is tax free, even if you get a 1099 claiming otherwise.

It’s unnerving when you get a 1099 after you thought the debt, and all its complications were gone.

But for bankruptcy clients, the answer is simple:

Debt discharged in bankruptcy is not taxable.

Tax on cancelled debt

The tax code wants to treat the discharge of debt as if it were income. Thankfully, there are exceptions to that rule. They’re found here.

Debt may get cancelled in lots of ways:

  • in a short sale;
  • by compromising a debt
  • by lender compliance with a settlement agreement with the feds;
  • in a bankruptcy; or
  • in a foreclosure.

Lenders and debt collectors believe themselves bound to send out a 1099 whenever they handle a transaction that may implicate cancellation of debt. They aren’t rendering an opinion on the tax treatment of the event. They are just reporting it to the IRS.

Receipt of a 1099 is not the final word on the topic; it’s only notice that the transaction in question has been reported to the IRS.

Bankruptcy is an exception

The standard rule is that debt that is cancelled is treated as though you had received that much cash, and that pseudo-cash is treated as income. And, if it’s income, the IRS thinks it’s taxable.

The exceptions to recognizing that transaction as income found in IRC 108 include

  • insolvency at the time, and
  • discharge of the debt in bankruptcy.

Claiming the exception

To avoid including the 1099 total in your taxable income, you have to file an IRS form to rebut the 1099. It’s form 982 and right at the top are the boxes to check to invoke the exceptions.

The form says, in the first exception:

Discharge of indebtedness in a title 11 case

Title 11 is where bankruptcy law is found. This is your “out” if you got a bankruptcy discharge.

Other grounds to exclude income

Insolvency at the time of the debt forgiveness is another exception.

The form includes a worksheet to see if you are insolvent for the purposes of this provision of law.

Remember, too, that if you did not have personal liability for the debt, the cancellation of that debt is not even forgiven debt. There was no debt.

You may have no personal liability because of a previous bankruptcy or by reason of California’s anti deficiency laws.

Also, there is special legislation dealing with cancellation of debt upon loss of a primary residence, excluding phantom income from qualifying transactions.

You may think of bankruptcy as the ultimate solution to your debt problems. Declare bankruptcy and all your debts will be eliminated, right? Unfortunately, that’s not the case. Some debts can be discharged by Chapter 7 or Chapter 13 bankruptcy; some can only be discharged by a Chapter 13 bankruptcy; others cannot be discharged at all. It helps to know what you’re getting into when you declare bankruptcy, so here is some information from the top bankruptcy lawyers at Nahrgang & Associates about which types of debt can be discharged in a bankruptcy:

Debts That Can Be Discharged in a Chapter 7 or Chapter 13 Bankruptcy

Most people use Chapter 7 of the U.S. bankruptcy code to deal with their debt. Under Chapter 7, many of your assets like your home will be liquidated to cover your debts. Chapter 13 is known as reorganization, and if you have enough income to qualify, you can retain certain assets that would be lost in a Chapter 7 bankruptcy while you pay off your debt. While there are some debts you will still be responsible for after declaring bankruptcy, Chapter 7 and Chapter 13 can discharge any of the following:

  • Credit Card Debt
  • Personal Loans
  • Promissory Notes
  • Medical Bills
  • Lawsuit Judgements Against You
  • Financial Obligations Under Leases and Contracts

Debts Dischargeable by Chapter 13 Only

Declaring Chapter 13 bankruptcy carries a number of advantages for those who qualify for it. In addition, Chapter 13 can discharge some debts that Chapter 7 cannot. These include:

  • Marital Debts including Divorce Settlements
  • Debt Incurred to Pay a Non-Dischargeable Tax Debt
  • Court Fees
  • Condo, Co-op, and HOA fees
  • Debts for Loans from a Retirement Plan
  • Debts That Could not be Discharged in a Previous Bankruptcy

Non-Dischargeable Debts

Some debt cannot be discharged in a bankruptcy; in other cases, you may have to meet certain qualifications to discharge it. Some examples of non-dischargeable debt include:

  • Child Support
  • Alimony Payments
  • Fines, Penalties, and Restitution Owed Due to Criminal Charges
  • Some Types of Tax Debt
  • Debts Incurred as a Result of Injuring of Killing Another Person in a Drunk Driving Accident

While these debts can never be discharged, you may be able to petition a judge to grant you a legal exception to some other types of debt. As an example, student loan debt can sometimes be discharged if you convince a judge that you will be unable to pay it. These situations are usually specific and complex, so it’s best to speak with a bankruptcy attorney to find out if you may qualify.

There are also other cases where you will not be responsible for a debt unless a creditor can convince the courts that you should be. These usually involve debts owed to someone who defrauded you or committed other crimes. Again, our bankruptcy attorney in Bucks County, PA can examine your situation and find out if your debt is dischargeable or not. If you live in Philadelphia or anywhere else in Southeastern Pennsylvania, Nahrgang & Associates can help you with your debt situation. Get in touch with us by dialing (610) 489-3041 or by filling out the online form on our contact page to speak with a bankruptcy attorney about bankruptcy, debt relief, divorce law, foreclosures, and more.

Overview

The provisions of the Bankruptcy Code are complicated. It is advisable for businesses and individuals to consult with an attorney before filing a bankruptcy petition. Bankruptcy, or more specifically, a case that is filed under one of the chapters of title 11 of the United States Code (the Bankruptcy Code), is a legal procedure for dealing with debt problems of individuals and businesses.

If an individual or a business is having financial difficulty and is unable to immediately pay existing debts, the individual or business may file for bankruptcy in the United States Bankruptcy Court. The Office of the U.S. Trustee is charged with overseeing the administrative aspects of the bankruptcy process.

For complete information on bankruptcy filing, fees and proceedings, visit the United States Bankruptcy Court, District of Massachusetts website or contact them at:

  • United States Bankruptcy Court
    John W. McCormack Post Office and Court House
    5 Post Office Square, Suite 1150
    Boston, MA 02109-3945
    617-565-8950
  • United States Bankruptcy Court
    Harold Donohue Federal Courthouse
    595 Main Street, Room 211
    Worcester, Massachusetts 01608-2076
    508-770-8900
  • United States Bankruptcy Court
    United States Courthouse
    300 State Street
    Springfield, MA 01105
    413-785-6900

Types of bankruptcy filings

Chapter 7: Liquidation

Chapter 7 is designed for individuals and businesses experiencing financial difficulty that do not have the ability to pay their existing debts. Under Chapter 7 a trustee takes possession of all of your property. You may claim certain property as exempt under governing law. A bankruptcy trustee then liquidates all non-exempt property and uses the proceeds to pay your creditors according to a distribution scheme required by the Bankruptcy Code.

The main purpose of filing a Chapter 7 case is to obtain a discharge of your existing debts. A bankruptcy discharge is a court order releasing you from liability for many types of debts. If, however, you are found to have committed certain kinds of improper conduct described in the Bankruptcy Code, your discharge may be denied by the court and the purpose for which you filed the bankruptcy petition will be defeated.

Even if you receive a discharge, there are some debts which are not discharged under the law. These include certain types of taxes, student loans, alimony and child support payments, debts fraudulently incurred, debts for willful and malicious injury to a person or property, and debts arising from a drunk driving charge. Generally speaking, a bankruptcy discharge does not remove liens (including tax liens) from your property.

Chapter 11: Reorganization

Chapter 11 is designed for the reorganization of a business. It is also available to individual debtors who exceed the thresholds for Chapter 13 bankruptcies.

Under Chapter 11 the Bankruptcy Court approves a plan of reorganization which provides for payment of claims in full or in part, depending on the priority and type of claim.

Chapter 12: Family farmers and fisherman

Chapter 12 is designed to permit family farmers to repay their debts over a period of time from future earnings. It is in many ways similar to a Chapter 13 filing.

The eligibility requirements are restrictive. It is limited to those whose income arises primarily from a family-owned farm.

Chapter 13: Repayment of all or part of the debts of an individual with regular income

Chapter 13 is designed for individuals with regular income who are temporarily unable to pay their debts. Chapter 13 gives them the option to pay their debts in installments over a period of time. You are eligible for Chapter 13 if your debts do not exceed certain dollar amounts set forth in the Bankruptcy Code.

Under Chapter 13 you must file a plan with the court to repay your creditors all or part of the money that you owe them, using your future earnings. Usually the period allowed by the court to repay your debts is three years, but may be extended to five years. Your plan must be approved by the court before it can take effect.

After completion of payments under your plan, most debts are discharged. Debts such as alimony and child support payments and certain long-term secured obligations are never discharged.

The information contained on this page is not, nor is it intended to be, legal advise or a complete explanation of any topic.

You may think of bankruptcy as the ultimate solution to your debt problems. Declare bankruptcy and all your debts will be eliminated, right? Unfortunately, that’s not the case. Some debts can be discharged by Chapter 7 or Chapter 13 bankruptcy; some can only be discharged by a Chapter 13 bankruptcy; others cannot be discharged at all. It helps to know what you’re getting into when you declare bankruptcy, so here is some information from the top bankruptcy lawyers at Nahrgang & Associates about which types of debt can be discharged in a bankruptcy:

Debts That Can Be Discharged in a Chapter 7 or Chapter 13 Bankruptcy

Most people use Chapter 7 of the U.S. bankruptcy code to deal with their debt. Under Chapter 7, many of your assets like your home will be liquidated to cover your debts. Chapter 13 is known as reorganization, and if you have enough income to qualify, you can retain certain assets that would be lost in a Chapter 7 bankruptcy while you pay off your debt. While there are some debts you will still be responsible for after declaring bankruptcy, Chapter 7 and Chapter 13 can discharge any of the following:

  • Credit Card Debt
  • Personal Loans
  • Promissory Notes
  • Medical Bills
  • Lawsuit Judgements Against You
  • Financial Obligations Under Leases and Contracts

Debts Dischargeable by Chapter 13 Only

Declaring Chapter 13 bankruptcy carries a number of advantages for those who qualify for it. In addition, Chapter 13 can discharge some debts that Chapter 7 cannot. These include:

  • Marital Debts including Divorce Settlements
  • Debt Incurred to Pay a Non-Dischargeable Tax Debt
  • Court Fees
  • Condo, Co-op, and HOA fees
  • Debts for Loans from a Retirement Plan
  • Debts That Could not be Discharged in a Previous Bankruptcy

Non-Dischargeable Debts

Some debt cannot be discharged in a bankruptcy; in other cases, you may have to meet certain qualifications to discharge it. Some examples of non-dischargeable debt include:

  • Child Support
  • Alimony Payments
  • Fines, Penalties, and Restitution Owed Due to Criminal Charges
  • Some Types of Tax Debt
  • Debts Incurred as a Result of Injuring of Killing Another Person in a Drunk Driving Accident

While these debts can never be discharged, you may be able to petition a judge to grant you a legal exception to some other types of debt. As an example, student loan debt can sometimes be discharged if you convince a judge that you will be unable to pay it. These situations are usually specific and complex, so it’s best to speak with a bankruptcy attorney to find out if you may qualify.

There are also other cases where you will not be responsible for a debt unless a creditor can convince the courts that you should be. These usually involve debts owed to someone who defrauded you or committed other crimes. Again, our bankruptcy attorney in Bucks County, PA can examine your situation and find out if your debt is dischargeable or not. If you live in Philadelphia or anywhere else in Southeastern Pennsylvania, Nahrgang & Associates can help you with your debt situation. Get in touch with us by dialing (610) 489-3041 or by filling out the online form on our contact page to speak with a bankruptcy attorney about bankruptcy, debt relief, divorce law, foreclosures, and more.

How to confirm if a debt was discharged in bankruptcy

You might have heard that the Internal Revenue Service (IRS) considers canceled, discharged, or forgiven debts to be income, and that you must report that income on your tax return. And that’s true, at least to some extent. But this isn’t a blanket rule that applies to all debts that are discharged.

Debts usually aren’t considered to be income if they’re discharged as part of a bankruptcy proceeding. The rules change if you have debts forgiven outside of bankruptcy, but in some cases, you don’t have to report these as income either in some cases, either.

A forgiven, canceled, or discharged debt is one that the creditor has agreed to or is prohibited from pursuing payment. You no longer owe it.

Debts Discharged in Bankruptcy

“Taxpayers who file for bankruptcy are generally not required to include the canceled debts in their taxable incomes,” explains Cindy Hockenberry, an enrolled agent and tax information analyst with the National Association of Tax Professionals.

This is the case even if you receive a Form 1099-C from a lender showing the amount of the debt that’s been canceled or discharged. Hockenberry advises, “Attach Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), to your income tax return. This shows the IRS that the discharged amount is excluded from income under Code Section 108.”

Be sure to attach the form because the lender is also obligated to submit a copy of it to the IRS. It could raise a flag if you don’t include the amount on your tax return without any supporting documentation or explanation.

Debts Discharged Before Bankruptcy

You must include the amount of the debt stated on Form 1099-C on your tax return if the lender forgave it and filed the form with the IRS before you filed for bankruptcy. It’s not a debt any longer when this happens. It’s now income—you’ve borrowed money you don’t have to pay back.

Bankruptcy can only cancel debts that exist at the time you file. The debt is gone if you’ve already received a Form 1099-C. It’s been turned into income, and bankruptcy doesn’t erase income.

Canceled Debts That Are Gifts

The IRS indicates in Publication 525 that you don’t have to include a canceled debt in your income if it occurs as a gift or a bequest.   Debts are therefore excluded from income if a kind family member forgives money you owe them in their last will and testament, or if a kindly benefactor says, “Don’t worry about it. You don’t have to pay me back. Happy holiday.”

Other Exceptions to Discharge Rules

Debts can be excluded from your income for tax purposes if you’re insolvent—the total amount of your debts exceeds the total fair market value of all your assets. This is the case even if you haven’t yet filed for bankruptcy to rectify the problem.  

But here’s another catch: The extent of your insolvency must be as great as, or more than, the debt or debts that were canceled. You’re fine if your debts exceed the fair market value of your assets by $10,000 and a lender forgives $10,000 in debt or less, but the difference becomes taxable income if your insolvency is only $10,000 and the lender cancels a $15,000 debt. You’d have to report that additional $5,000.

Student loans are sometimes canceled if you work them off with certain employers. The IRS does not consider this to be income to you, either.

You don’t have to count canceled debt as income, either, if it’s associated with a foreclosure, at least through the end of 2020. The Mortgage Debt Forgiveness Act provided for this tax break, but the legislation expired at the end of 2016. Then the Bipartisan Budget Act of 2018 extended it retroactively through the end of 2017, and the Further Consolidated Appropriations Act of 2020 extends it through December 31, 2020.  

The mortgage has to be on your principal residence to qualify. The law allows you to exclude from income up to $1 million in debt, or up to $2 million if you’re married and you file a joint return with your spouse.

The mortgage debt forgiveness provision in the tax code has died and been resurrected numerous times, so keep an eye out for further legislation that might breathe new life into it in 2021.

The Bottom Line

Don’t report a discharged debt until you’ve consulted with a tax professional about the exact details of your situation. You want to be very sure that you do, indeed, have to report the income. Likewise, plan on including a debt as income unless and until a tax professional tells you that you don’t have to.

Bankruptcy lasts for 12 months – and at the end of this period, you will be discharged. PayPlan explores what this means below and what to do next.

Discharge from bankruptcy – what does this mean?

If your bankruptcy is discharged, this means you are no longer bound by the restrictions of your bankruptcy, your debts are cleared and you can now make a fresh start financially.

You may still have to deal with the sale of your property after discharge though – we have more information about this here – but, for now, it means your bankruptcy is over and you are debt free.

When does a bankruptcy get discharged?

Your bankruptcy will be discharged after 12 months – if there have been no delays with information and you have cooperated with the Official Receiver .

However, your bankruptcy discharge could be delayed if the Official Receiver feels you have failed to provide the information they need on time and in full. If this is the case, they can ask the court for a suspension of discharge until they have everything they need.

A delay of your bankruptcy discharge could also occur if you are found to have been dishonest with any information or have attempted to hide assets, such as property or high-value vehicles, that could have been included in your bankruptcy.

In this case, you may be committing bankruptcy fraud, which is an offence. Many people do not understand the restrictions bankruptcy places upon them – we have a guide on what they are here , which we recommend reading if you are considering taking on bankruptcy.

Proof of your discharge from bankruptcy

Your discharge will happen automatically if there have been no issues within the 12 month period. This means often you won’t receive a letter confirming you have been discharged. If you do want proof – and it is a good idea to have this in case creditors chase you later for any reason – this can be obtained by:

  1. Contacting the Insolvency Service by email to receive a free letter of confirmation.
  2. Contacting the court which dealt with your bankruptcy and asking for a Certificate of Discharge (this costs £70, which can be paid via cheque or postal order).

How to check if you’ve been discharged from your bankruptcy

If you’re unsure whether you’ve been discharged, check the Insolvency Register for your name. This should provide details of the date your bankruptcy ended, and this information stays on the register for up to three months.

Alternatively, your Official Receiver should be able to confirm the date you will be discharged on. Contact them or their office directly, using the contact details they have provided you.

Will your credit report be updated?

Once your bankruptcy has been discharged, you could send confirmation of this to each of the credit reference agencies – Experian, Equifax and Callcredit – asking that they update your report. This may speed up when your report is updated, with the debts as satisfied.

It’s important to know even though your bankruptcy will be noted as discharged on your credit report it will continue to have a negative effect for quite a long time. It will remain listed on there for six years from the date the bankruptcy was granted. Time will lessen the impact it has, so be patient and wait for your credit rating to improve gradually – our in-depth guide on how to improve your credit rating offers some suggestions how you can perhaps speed this process up.

Even once the listing has come off your credit report, creditors may still ask if you’ve ever been bankrupt and it’s very important that you answer them truthfully.

Before you take on a debt solution such as bankruptcy, it’s important you seek advice and that you are confident it is the best choice for you and your situation. If you want to speak to an expert here at PayPlan about bankruptcy and your options, then get in touch with one of our team today on 0800 280 2816.

You may think of bankruptcy as the ultimate solution to your debt problems. Declare bankruptcy and all your debts will be eliminated, right? Unfortunately, that’s not the case. Some debts can be discharged by Chapter 7 or Chapter 13 bankruptcy; some can only be discharged by a Chapter 13 bankruptcy; others cannot be discharged at all. It helps to know what you’re getting into when you declare bankruptcy, so here is some information from the top bankruptcy lawyers at Nahrgang & Associates about which types of debt can be discharged in a bankruptcy:

Debts That Can Be Discharged in a Chapter 7 or Chapter 13 Bankruptcy

Most people use Chapter 7 of the U.S. bankruptcy code to deal with their debt. Under Chapter 7, many of your assets like your home will be liquidated to cover your debts. Chapter 13 is known as reorganization, and if you have enough income to qualify, you can retain certain assets that would be lost in a Chapter 7 bankruptcy while you pay off your debt. While there are some debts you will still be responsible for after declaring bankruptcy, Chapter 7 and Chapter 13 can discharge any of the following:

  • Credit Card Debt
  • Personal Loans
  • Promissory Notes
  • Medical Bills
  • Lawsuit Judgements Against You
  • Financial Obligations Under Leases and Contracts

Debts Dischargeable by Chapter 13 Only

Declaring Chapter 13 bankruptcy carries a number of advantages for those who qualify for it. In addition, Chapter 13 can discharge some debts that Chapter 7 cannot. These include:

  • Marital Debts including Divorce Settlements
  • Debt Incurred to Pay a Non-Dischargeable Tax Debt
  • Court Fees
  • Condo, Co-op, and HOA fees
  • Debts for Loans from a Retirement Plan
  • Debts That Could not be Discharged in a Previous Bankruptcy

Non-Dischargeable Debts

Some debt cannot be discharged in a bankruptcy; in other cases, you may have to meet certain qualifications to discharge it. Some examples of non-dischargeable debt include:

  • Child Support
  • Alimony Payments
  • Fines, Penalties, and Restitution Owed Due to Criminal Charges
  • Some Types of Tax Debt
  • Debts Incurred as a Result of Injuring of Killing Another Person in a Drunk Driving Accident

While these debts can never be discharged, you may be able to petition a judge to grant you a legal exception to some other types of debt. As an example, student loan debt can sometimes be discharged if you convince a judge that you will be unable to pay it. These situations are usually specific and complex, so it’s best to speak with a bankruptcy attorney to find out if you may qualify.

There are also other cases where you will not be responsible for a debt unless a creditor can convince the courts that you should be. These usually involve debts owed to someone who defrauded you or committed other crimes. Again, our bankruptcy attorney in Bucks County, PA can examine your situation and find out if your debt is dischargeable or not. If you live in Philadelphia or anywhere else in Southeastern Pennsylvania, Nahrgang & Associates can help you with your debt situation. Get in touch with us by dialing (610) 489-3041 or by filling out the online form on our contact page to speak with a bankruptcy attorney about bankruptcy, debt relief, divorce law, foreclosures, and more.