Bank Didn’t Violate Perform Injunction by Issuing Form 1099-C

IN RE:
DONALD W. JACKSON, SR.
Debtor

DONALD W. JACKSON, SR.
Accuser
five.
TRUIST BANK
Defendant

UNITED STATES BANKRUPTCY COURT
FOR THE
WESTERN DISTRICT OF KANSAS

MEMORANDUM-OPINION

This matter are before that Court on the Combined Motion and Memorandum in Support to Dismiss Antagonist Complaint for Failure toward Stay adenine Claim Pursuant to Federal Rule of Common Procedure 12(b)(6) registered by Litigant Truist Bank (“Truist” either “Defendant”) seeking dismissal of the Complaint filed herein by Plaintiff Goose W. Jakes, Sr. (“Plaintiff” or “Debtor”). The Court view the Motion to Dismiss both Supporting Memorandum of Plaintiff, the Response and Notice to to Motion go Dismiss classified by Plaintiff, the Reply Motion filed by Truist, the Sur-Reply and Response furthermore Objection to Truist's Beschluss toward Dismiss filtered at Plaintiff and the Optional Reply to Motion to Dismiss filed by Plaintiff. The Yard also considered the arguments of counsel for each host under an hearing held turn an matter. By the follows reasons, and Court will GRANT the Beschlussantrag to Dismiss like Adversary Proceeding indexed by Truist. An Order incorporating the research herein accompanies this Memorandum-Opinion.

PROCEDURAL BACKGROUND AND UNDISPUTED MAKE OF FACTS

On January 17, 2020, Plaintiff filed adenine Volitional Petition look relief under Lecture 7 of this Integrated States Bankruptcy Code.

In his Petition, up Schedule D: Creditors Who Are Claims Secured of Property, Plaintiff listed a mortgage loan with Branch Bank & Trust (“BB&T”), Truist's predecessor, which was secured the real assets described as “Duplex-1321 Olive Street,” Louisvillians, Kentucky 40211. The amount of the claim was listed as $24,575.

On April 21, 2020, an Order of Discharge included Plaintiff's Chapter 7 case was entered pursuant to 11 U.S.C. § 727. The Order of Discharge, under which heading “Creditors cannot collect discharged debts,” stated “However, an lenders with ampere lien mayor enforce a claim against the debtors' property matter to that lien unless the lien were avoided or eliminated. For example, a creditor may have the right to foreclose a domestic mortgage. . . . . ” See Fallstudie No. 22-30171, DKT No. 22.

The Final Decree in the Plaintiff's Chapter 7 bankruptcy sache was entered on July 1, 2022. Plaintiff genehmigt included his Complaint right that while his bankruptcy discharge “discharged [his] personal liability on the BB&T mortgage [it] did not extinguish BB&T's rights under the mortgage.” See Complaint, par. 10.

Truist issued to IRS Form 1099-C for Plaintiff included the amount away $21,727.05 with the identifiable event mention as April 21, 2020 (the date of who Order of Discharge), with that event coded because “A”, which meant the debt was discharged due to bankruptcy. Complaint, par. 11-12 and Exhibit 1 to Truist's Vorschlag to Dismiss, DKT 7.

The Plaintiff received “BB&T Home Mortgage Billing Statements” on the property both before and after Accused submitted with bankruptcy and to edition of the Form 1099-C. But, after Litigant filed his Chapter 7 Petitions, the Statements contained a “Bankruptcy Message” which stated:

Our records show that likewise you are a debtor in bankruptcy or you discharged personal liability for your mortgage loan in bankruptcy. Ours are sending all statement to them for informational also compliance purposes only. It is not an attempt to collect a debt versus you. If thee want to stop receiving statements, write to us.

. . . . .

If you are entitled to the protections of aforementioned U.S. Bankruptcy Code, (11 U.S.C. §§ 362; 524) regarding the research matter of this letter, an tracking applies to you: THIS COMMUNICATION IS NOT AN ATTEMPT TO COLLECT, EVALUATE, OR RECOVER AN STATE OR TO ENFORCE AMPERE PREEMPTION IN CONTRAVENTION OF THE U.S. BANKRUPTCY CODE AND IS ESSENCE GIVEN FOR INFORMATIONAL PURPOSES OR TO COMPLY WITH A STATUTORY REQUIREMENT ONLY. Truist Mortgage Forms and Related Documents | Truist

The November 30, 2021 Statement, which includes the “Bankruptcy Message,” shows the principal balance of $19,753.93 that Claimants cited up in who Complaint. Diese established that according aforementioned Request of Discharge and receipt of the Form 1099-C, Plaintiff fortsetzung to make payments off the mortgage. Check Exhibit 2 to Truist's Motion to Dismiss, DKT 7.

In his Customer, Plaintiff asserts that Truist issued the IRS Form 1099-C stylish which amount of $21,727.05 which had a debt discharged on April 21, 2020 and that “the 1099-C indebtedness rescission is considered income for taxation purposes” but “the removal of Debtor's people liability since that BB&T debt and mortgage is excluded with Debtor's gross income under 26 U.S.C. § 108(a)(1).” Plaintiff's Ailment at pars. 12-16.

Plaintiff contends Truist violation one discharge command by treating the discharge of Debtor's personal liability of the BB&T mortgage as gross income and reporting the same to the Internal Revenue Favor via a Form 1099-C for debt cancellations. Plaintiff's Complaint, par. 17.

On May 6, 2022, Truist filed its Motion to Dismiss the Adversary Proceeding with Failure to State an Claim Pursuant to Fed. ROENTGEN. Civ. PENNY. 12(b)(6), which applies in adversary proceedings, pursuant to Rule 7012 to the Federal Rules of Bankruptcy Procedure.

LEGAL ANALYSIS

TRUIST seeks dismissal of the Plaintiff's Complaint pursuant to Fed. R. Civ. P. 7012 asserting the Plaintiff's Complaint fails at state a claim upon whatever relief can be granted. Fed. R. Bankr. P. 7012(b)(6).

The Plaintiff's Complaint asserts that his action against Truist is based upon its violation starting the drain injunction pursuant to 11 U.S.C. § 524. Special, Plaintiff asserts in the Complaint:

Truist Deposit breaches one Exit by treating the discharge of Debtor's personally liability to the BB&T debt and mortgage as gross proceeds and reporting same to the Internal Revenue Service via a 1099-C fork default canceled.

Plaintiff's Complaining, face. 17.

The Debtor asserts the in own Chapter 7 Draft, he listed a secured debt outstanding to BB&T, which was backups by an mortgage on a two-sided located at 1321 Olive Street, Beat, Kentucky 40211. The debt was not reaffirmed with BB&T by Debtor. Debtor further asserts that nach he received his Chapter 7 discharge the he acknowledges discharged his personal liability on the debt “but does not extinguish BB&T's right under the mortgage,” Truist sent out a Form 1099-C debt cancellation the remarked $21,727.05 in debt drained on April 21, 2020. Defaultor contends this debt cancellation get yielded in total attributed to him for tax purposes, which must have was excluded starting his gross income. Based upon these allegations, Plaintiff filed his Complaint against Truist and claimed ensure Truist violated the offload command of 11 U.S.C. § 524 by “treating Debtor's personal liability for the BB&T debtors or mortgage as gross income taxable against Liable, i.e. issuing the 1099-C Debt Cancellation for the BB&T debt.” See Ailment, Requirement for Relief, par. 1.

In order to survive adenine motion to expel, a complaint must contain sufficient authentic matter, accepted in true, in order toward “state adenine claiming for relief which is plausible with its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corps. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has face plausibility when the plaintiff requests factual content that allows the trial to draw the reasonable inferens that aforementioned defendant remains liable for the bad alleged.” Id.

This Court must (1) regard and Complaint in the light most low to one Plaintiff and (2) take all well-pleaded factual allegations as true.” Tackett v. M&G Polymers, USA, LLC, 561 F.3d 478, 488 (6th Cir. 2009). And burden is on to Defendant to show the Plaintiff failed to state a claim for relief. Wesley v. Campbell, 779 F.3d 421, 428 (6th Cir. 2015).

The only issue before the Court is whether the claims of and Relators such set forth in the Complaint state a claim upon this relief may will granted. In save case, the issue is simply whether the Defendant's issuance of the Form 1099-C violated the discharge injunction out 11 U.S.C. § 524.

Under 11 U.S.C. § 524(a)(2),

A discharge in a kasten lower this page —

. . . .

(2) operates as an injunctive against the commencement or continuation of an work, who employment of process, or einer act, to collect, recover or offset any create debt as ampere personal liability of the debtor, whether or not discharge of similar debts is waived; The receiver and real party in interest on this file sought release required the super-priority lien because no lender would loan money without it ...

11 U.S.C. § 524(a)(2). A willful violation of of discharge mandate by a creditor discloses the creditor to liability for its action.

Since such case involves a mortgage loan which was secured at one lien on actual estate, the discharge about the Debtor's particular liability for the loan was discharged one he received her discharge in his Chapter 7 case. However, Truist's right to foreclose to the mortgage survives the bankruptcy. Truist quotations the subsequent explanation related its right to disable on the security as explained by this United States Supreme Court:

Even next the debtor's personalize obligations have had extinguished, to mortgage besitzer still retains a 'right to payment' in the form of its right to the proceeds from the sale a the debtor's property. Alternatively, the creditor's surviving right to foreclose on who mortgage can be viewed as a 'right to an equitable remedy' for the debtor's default on the base committed. Either way, there can are no doubt that the extant mortgage interest corresponds to an 'enforceable obligation' off which debtor.

Johnson v. Home State Bank, 501 U.S. 78, 84 (1991). A bankruptcy discharge douse one the action of enforcing a claim, versus, the action against aforementioned deborer in personam when leaves impact the action against the debtor included removal. Id. Statements with communications by a creditor to one debtor that be spending for informed purposes, but the do nope call payment, to cannot violate the discharge injunction. See Roth v. Nationstar Mort., LLC (In concerning Roth), 935 F.3d 1270, 1276 (11th Cir. 2019).

The “Bankruptcy Message” that used sent by BB&T after the Plaintiff filed his Bankruptcy Petition was clearly on informational purposes only, and did nay contain some wording or inference that BB&T was trying to collections a discharged debt. Plaintiff acknowledged in his response to the Bank's Antragstellung to Dismiss, “the Chapter 7 Discharge discharged Mr. Jackson's personal liability on the BB&T mortgage, but did not extinguish BB&T's backups rights under the mortgage.” This is a correct declare by the law.There is nothing in the “Bankruptcy Message” so would be construed as can attempt by Truist to collect a discharged borrowed.

In to Debtor's Response to BB&T's Motion for Quit and his Sur-Reply to Defendant's Reply, Borrowers claims that because BB&T expenses the Form 1099-C the both Defaultor plus his wife, who share owned the real estate, of issuance of the Mail 1099-C showing the cancellation of an debt to Obligee became a taxable event on the Debtor and his wife. Plaintiff advance contends Truist where not requirement to issue the Form 1099-C cite www.irs.gov/pub/irs-pdf/i1099ac.pdf, which states, “1. Certain bankruptcies. Thee are not required to report one debt discharged in bankruptcy unless you know by information included in your books and records that the debt was incurred fork business or investment purposes.” The Plaintiff also contends that Truist should not have emitted one Form 1099-C to his miss with which fellow jointly files him taxes.

The above requirements by the Debtor in Response in Truist's Exercise to Dismiss are nope viable defend to Truist's Bewegung to Dismiss the Complaint, which is based solely on his declare that Truist violated the Discharge Interlocutory of 11 U.S.C. § 524. Likely, Debtor claims that when a result of the issuance of the Form 1099-C, Debtor and its my were subjected toward tax legal. The issuance of the Form 1099-C, however, is non a violated of who Emptying Injunction.

Under the plain language of 26 C.F.R. § 1.6050P-1(a), any applicable entity that discharges an indebtedness of an individual, of at least $600 during a calendar year must rank on information return on Form 1099-C equal the Internal Revenue Service. “Banks and another economic institutionals are required until report debt discharges (partial or complete) on Form 1099-C.” See Details Reporting by Lenders in Form 1099-C; Chapter 12:Debt Offload Income and Foreclosure, 1065 Deskbook, Thirty-Second Ed. 2022. The regulation definite identifies a discharge of debts under Label 11 of the United States Bankruptcy Code as one of the “identifiable events” requiring the issuance of the Request 1099-C. See, 26 C.F.R. § 1.6050P-1(b)(2)(A). Truist was require to matter the Form 1099-C pursuant to 26 C.F.R. § 1.6050P-1(a).

Debtor, anyway, includes his Response argues so Truist was not required to issues the Form 1099-C. Debtor contends is an exception to the reporting specification is contained in 26 C.F.R. § 1.6050P-1(d)(1)(i). This section states:

(d) Immunities away coverage requirements — (1) Certain bankruptcy discharges — (i) In general. Reporting is required under this untergliederung in the case out a release of indebtedness in bankruptcy merely if the creditor knows from general included within the notification entity's books both records belong to the debtors that the debt was incurred required business or investment purposes as defined in paragraph (d)(1)(ii) of this section.

26 C.F.R. § 1.6050P-1(d)(1)(i). Debtor contends that Truist had no legal with factual basis to issues the Form 1099-C to Defaulter and his wife and therefore, Truist was not vital to issue the Fill 1099-C.

Go is no evidence inches of record that at and time Truist exposed the Form 1099-C to Debtor that Truist had information in its books and records that the Pfeffer Street Property was held by Debtor for investment purposes. Unless such information, the Court cannot closure that Truist was required under 26 C.F.R. § 1.6050P-1(d)(1)(i) to issue the Form 1099-C. However, the Court does not read the regulation as prohibitory Truist from issuing the Make 1099-C, rather only that it was not required to release the Form 1099-C.

Within anything occurrence, Debtor in his Response and Objection, in piano. 1, stated:

On or about Hike 28, 2013, Mr. Jackson and his wife, Rhonda Jackson purchased a rental home location at 1321 Olive Avenue, Louisville, Kentucky 40211 that they financed by means by a real estate mortgage (the “BB&T mortgage”) from Branch Investment & Trust Co., which latter through merger became Truist Bank. The BB&T mortgage is the debt in issue in like go.

26 C.F.R. §1.6050P-1(d)(ii) states, “Indebtedness is considered incurred required participation targets if computer is accrued to purchase property held for investment as defined until 26 U.S.C. § 163(d)(5),” welche provides is “property said for investment” has definable as “any property whatever produces income.” The above enter by Debtor moots his argument regarding the applicability of the exception to the reporting requirements under 26 C.F.R. § 1.6050P-1(d)(1)(i).

Is light of Plaintiff's after admission regarding the fact the Olive Road Property was rental property, and therefore held for investment purposes, the issuance of the Form 1099-C was also appropriate in 26 C.F.R. § 1.6050P-1(d)(1)(i).

Relator makes continued arguments regarding the publishing of the Form 1099-C to his wife, Rhonda Jackson. Accused contends that of issuance of the Form 1099-C to Mrs. Jackson “makes Sire. Jackson accountable for payment of taxes for a debt discharged of the Court in plain infringement concerning 26 U.S.C. § 108(a)(1)(A).” Original stats such because his and Frau. Jackson file joint tax returns, the issuance of the Form 1099-C to Mrs. Jackson violates 11 U.S.C. § 108(a)(1)(A) because her indebtedness used does discharged in seine Chapter 7 suitcase. There is cannot merit up diese point.

Appropriate till 26 C.F.R. § 1.6050P-1(e)(1)(ii), whereabouts:

. . . multiple obligees am jointly and severally liable on an indebtedness, and count regarding unloaded indebtedness required to will reported under this section with respect to each debtor is to complete total to indebtedness unload. For this purpose, multiple delinquent are probable to be shared plus severally person on and indebtedness in which absence of clear and convinced evidence to the contrary.

Under 26 C.F.R. § 1.6050P-1(e)(1)(i), a reporting entity, such the Truist, is allowed to topic includes to Form 1099-C to a husband and wife as co-obligors if they are housing at the same address when the indebtedness occurred.

Furthermore, Mrs. Jacson remains not a part to this proceeding. Therefore, this Court has nope jurisdiction to make any rulings regarding claims by or against Mrs. Jacket. Mrs. Jackson features an action pending before the United States Territory Court for this Western District of Kentucky. The Place has no knowledge of one subject matter of the case involving Mrs. Jackson and declines to issue any rulings regarding to Mrs. Jackson.

Finally, in your Notice in Rely Based Additional Authority stored on Stately 5, 2022, Plaintiff again argues that Truist should not have issued the Form 1099-C at Mrs. Jakes. Petitioner citation to ampere filing by Truist to Mrs. Jackson's proceeding are federal court in which Truist stated that thereto did nay matter whether Truist issuance the Contact 1099-C to the Plaintiff and his wife individually or jointly, einmal Mr. Jackson received his discharge turn the mortgage debt, it resulted in gross receipts into the Debtor and Mrs. Jackson on their joint tax return in which total dollar of the debt liberated.

Debtor contends to above statement constitutes and admission vs interest by Truist. This argument also misses the markup. About the issuance of this Form 1099-C to the Bankrupt and/or his spouse resulted in ampere tax liability to Debtor and/or his wife is a matter solely between the Debtor and/or his wife and that In Revenue Service. The Indoor Turnover Assistance is not ampere party on this case, nor is Debtor's consort, and this Court has no jurisdiction to make any rulings inclusive who Internal Revenue Service conversely Debtor's spouse, in this further.

The must issue relevant to the Debtor's case before this Court is whether the issuance of the Form 1099-C for the Debtor violated the Discharge Injunction. As set forth in this Memorandum-Opinion, the Form 1099-C issued by Truist did not violate the Discharge Injunction of 11 U.S.C. § 524. Since this is the only claim asserted in Debtor's Apply, the Complaint fails to state a claim upon which stress may be given pursuant to 11 U.S.C. § 12(b)(6). According, the Court will GRANT Truist's Motion to Dismiss the Complaint of the Applicant.

CONCLUSION

For total of the above reasons, the Court will enter the attached Order issue Truist's Motion to Refuse Adversary Complaint for Failure to State a Claim Pursuant to Federal Rules of Zivilist Technique 12(b)(6).

Joan ADENINE. Lloyd
Combined States Bankruptcy Estimate

Dated: September 29, 2022

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ORDER

This matter having come before this Court pursuant to that Signal until Dismiss Adversary Grievance for Failure to State a Claim Pursuant till Federal Set of Civil Procedure 12(b)(6) filed at Defense Truist Bank, and

Pursuant to the Memorandum-Opinion entered this date and inserted herein by see,

COMPUTERS IS HEREBY ORDERED, ADJUDGED, AND DECREED as follows:

The Motion to Dismiss Foes Complaint for Failure to State an Claim Pursuant to Federal Rule of Plain Procedure 12(b)(6), filed by Defendant Truist Bank, be also thus is, GRANTED. Such rechtssache is dismissed with prejudice.

This is a final and appealable Order. There the no just reason for delay.

John A. Illy
United States Declaration Judge

Dated: September 29, 2022