Law Offices of David P. Leibowitz LLC
Lakelaw is a registered assumed name for Law Offices of David P. Leibowitz LLC
Thomas Edison was one of America’s greatest inventors ever. His work with the electric light bulb was so legendary that a bulb illuminating is universally recognized as the symbol of a great new idea. He invented the kinetescope – the precursor to modern motion pictures. And he was deeply involved in the invention of the phonograph – the precursor to all modern music reproduction systems including the iPod.
By all accounts, Thomas Alva Edison died a very rich man. But the road to fame and riches was also marked by a visit to the bankruptcy court.
Back in 1894, Thomas Edison declared bankruptcy against the North American Phonograph Company. The story could have been written today. He had become the company’s largest creditor. He didn’t like the way the management of the company had been running the company. So he filed an involuntary bankruptcy petition against the company and then credit bid his debt so as to become the company’s new owner. Doesn’t that sound complete fresh and contemporary?
Creditors are still the “elephant in the room” in bankruptcy proceedings.
If your company is facing bankruptcy, you need a team that knows how to deal with creditors so that you have a fighting chance to reorganize. Our Lakelaw team has represented creditors in the past. So we know how to deal with them today. Give yourself a fighting chance to reorganize in Chapter 11. Rely on Lakelaw to help you in Illinois and Wisconsin in your real estate chapter 11, your small business chapter 11 or your corporate reorganization. Call David Leibowitz or Jonathan Brand at Lakelaw for immediate assistance.
Posted by David Leibowitz on February 10th, 2011 in Bankruptcy and Taxes
Banks frequently will send you – and the Internal Revenue Service – a form 1099C after you have completed a short sale of real estate. What does this mean? Well, if you owed the bank $250,000 and sold the house for $200,000 payable to the bank, there could be income tax consequences? Why?
Forgiveness of indebtedness is generally considered to be income. In other words, if you paid $200,000 to settle a $250,000 loan, you are considered to have received income in the amount of $50,000. As a matter of fact, this is “ordinary income” which can be taxed at rates approaching 40% when taking into account state income taxes.
But if you had to have a short sale, it’s probably because you were in financial difficulty in the first place. So if you file a bankruptcy after a short sale leading to “forgiveness of indebtedness income” or if you are insolvent – meaning less assets than liabilities – you may not be required to pay income taxes even if the bank stuck you with a IRS form 1099C. The IRS has issued a very good explanation of the entire situation here. The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.
So if you succeed at a short sale, you have a very good chance of avoiding income taxes in respect to cancellation of debt. When in doubt, contact us at Lakelaw, Your Financial Lifesaver ™.