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1099-C for Student Loan. Does insolvency apply?

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Posted · Report post

Widowed client (2009) with student loan with a remaining balance of $22K. Been paying on the loan since 2005 and paid on time.

Was awarded SS disability in Jan 2011 and is literally unable to work.

Student loan forgiven Jan 2012 and 1099-C issued. Client has been insolvent since back surgeries etc. in mid 2010 did not allow her to work.

Can I use insolvency as reason for the 1099-C to not be taxable income? Is there a special rule because it was a Student Loan that was forgiven?

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Posted · Report post

I'm not certain about the use of insolvency. If she is permanently and totally disabled, she may have to Request a Total and Permanent Disability Discharge. If you Google the term, you can download the application in Pdf format. Might be worth looking into.

JerryW

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Posted · Report post

I'm not certain about the use of insolvency. If she is permanently and totally disabled, she may have to Request a Total and Permanent Disability Discharge. If you Google the term, you can download the application in Pdf format. Might be worth looking into.

JerryW

The loan was discharged on 1-27-12. She received 1099-C for the discharge. She was definitely insolvent then. My question is about any special caveat for student loans and using insolvency so the forgiveness is not taxed.

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Posted · Report post

Just file form 982. I don't see any difference between that debt or a credit card debt. If tax payers were and are insolvent at the time of filing, you can use insolvency.

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Posted · Report post

Yes, it qualifies.

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Posted · Report post

No known exception for student loans. Granted, most are not discharged in bankruptcy (making them have a different character than other unsecured debt), but once they are cancelled, for whatever reason, they are treated like anyother cancelled debt.

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Posted · Report post

And now that we can easily attach PDF files to e-files, I would attach a statement showing her insolvency immediately before the cancellation of debt. It couldn't hurt, and you should have it prepared in your files anyway.

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