Depreciation Not Dischargeable in Bankruptcy. – JMS2

“Dear Lewis,

We are considering filing Chapter 13 ( due to 2 rental properties that are upside down nearly 50% ). They are now valued at the price of purchase 10yrs ago.
1 of the properties has a 50k 2nd mtg.

We have some cc debt. I am concerned about 1099C Tax statements for any deficiencies and if there are credit cards that do not have a balance, will my bankruptcy require that these accts be closed. We have a 720+ credit score and are not behind in any payments. The concern is that my work requires extensive travel, which requires a credit card for business i.e. lodging, expenses.


Dear JMS2,

Any credit cards that do not have a balance are not considered a debt and do not need to be listed on a bankruptcy petition. But almost all creditors get notice of the bankruptcy and very likely will close the card anyway.

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I have many clients that also need a credit card for travel and work. No one seems to be having any problems using a debit card for services. Or some of them have a company issued credit card (not in their personal name – through the company they work for).

Surrendering the investment homes in bankruptcy precludes the 1099C from becoming income. The lender’s will still issue the 1099, but it does not have to be reported as income because you will have filed bankruptcy.

But one tax consideration not often talked about is depreciation. If you have been depreciating these investment properties, the IRS will recapture this amount and you will have to pay tax. This cannot be discharged in bankruptcy.

Good luck!

My name is Lewis Roberts and I’m an attorney licensed in Florida and Georgia. My practice focus is consumer bankruptcy, real estate issues/closings, and mortgages. I also have Florida real estate broker and mortgage broker licenses. I am a proud member of the National Association of Consumer Bankruptcy Attorneys (NACBA), National Association of Consumer Attorneys (NACA), and a graduate of Max Gardner’s Bankruptcy Boot Camp. I enjoy helping people with decisions that impact their financial well-being.

Legal Disclaimer: This is for educational purposes only. It is not to be relied upon as legal advice. It also does not create an attorney-client relationship. No such relationship is formed with attorney without a written agreement.

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