Legal Question in Bankruptcy in California

Re: Debt Cancellation-Taxability

Not sure what you are asking.

If a creditor writes off a debt, which he had previously reported as income, he may deduct it as bad debt write off on his taxes, whether or not there is a BK.

The debtor may be given a "Debt relief" 1099, and be required to pay taxes on the amount as ordinary income.

Re: Debt Cancellation-Taxability

When a creditor writes off a bad debt it is done for accounting purposes. Since a debtor paying a debt is an asset, and a debtor not paying a debt is a loss. The only significance of the write off is that the creditors books are in line with their profit and loss. So although a creditor writes off a debt. They don't stop trying to collect the debt. That's why no one that I've ever known gets a Write Off 1099. Usually after the write off is when the creditor turns the debt over to a collection agency, or sells the debt for pennies on the dollar to someone that buys these debts in large batches.