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Don't ever do what I did. Ever. I need to go have stupid tattooed on my forehead. I hope all of you learn from my mistake.
I loaned a friend 7K. I got a letter from the Bankruptcy Court today that she has filed Chapter 7. It was just a loan between friends so I have no paperwork to use to file a proof of claim. I guess I just lost all that money I worked for. Every last cent.
Sad thing is she is now better off than I am. She is working at Microsoft and marrying a wealthy man in 3 weeks. I'm sure filing the bankruptcy was a condition of the marriage. If I was him, I would have done the same thing.
So here's my question. Can I write this loss off my taxes since the government is giving her permission to skip on her debts? I certainly suffered a loss.
If you got a letter from the BK Court, presumably she has listed her debt to you on her filing documentation, so at least you have "proof" that she owed it to you.
Chapter 7 isn't as easy to declare these days, especially if she has decent disposable income, they may deny her and make her file Chapter 13 instead.
Getting to your actual question, in order to claim a bad debt loss for tax purposes, you need to show that you intended to make a loan and not a gift (i.e., that you always expected the loan to be repaid) and that the debt is totally worthless (this is the rule for non-business bad debts, which I'm assuming is the case here).
If you meet both of these criteria, you may deduct the loss; it's treated as a short-term capital loss in the year that it became worthless. However, based on your lack of documentation you will have a problem proving that there actually was a loan if your claim is ever examined.
However, based on your lack of documentation you will have a problem proving that there actually was a loan if your claim is ever examined.
Wouldn't the letter from the BK court suffice as documentation? If a judge writes off that debt, then by default is that not a ruling affirming the loan was in fact a loan?
That is sad but she was likely never really a friend. But you certainly where to her. I would just take confort i teh old saying that what goes around;comes around. Its just a matter of time.OI thnik we have all had problems like this tho maybe not as costly but its nothing that is wrong with you.;its her.
If you got a letter from the BK Court, presumably she has listed her debt to you on her filing documentation, so at least you have "proof" that she owed it to you.
Chapter 7 isn't as easy to declare these days, especially if she has decent disposable income, they may deny her and make her file Chapter 13 instead.
I can hope but not likely. The majority of what she owes is most likely medical related and I was told medical bills are the easiest to get through bankruptcy. But, as I said, there's always hope.
Wouldn't the letter from the BK court suffice as documentation? If a judge writes off that debt, then by default is that not a ruling affirming the loan was in fact a loan?
I'm hoping this is true.
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