Do you have to claim amount discharged on taxes?

[momofmany]

Does anyone know if you have to claim the amount you have discharged in bankruptcy as income on your taxes?? Someone at my husband's work said that there is a new thing to try to deter people from filing bk, that you have to take whatever amount is discharged and add that on your income taxes and pay taxes on that as if it was income? I hope he's wrong!! It seems as if the point is to get a fresh start, you would be starting over with a black could above your head if you suddenly have to pay taxes on the discharged amount.

Thanks so much in advance! Sara

[banca rotta]

No

The only involvement with the IRS maybe if the trustee is looking to get your tax return but that's it. The forgiven debt is not taxed as income.

[magyar123]

Could be, however, if McCain becomes President. He'll keep on giving tax breaks to oil companies and his butt kissing cronies in big business.

[banca rotta]

Could be, however, if McCain becomes President. He'll keep on giving tax breaks to oil companies and his butt kissing cronies in big business.

True but he needs Frank, Pelosie, Harry Reed and the rest of the dems to push it through.

[HHM]

Does anyone know if you have to claim the amount you have discharged in bankruptcy as income on your taxes?? Someone at my husband's work said that there is a new thing to try to deter people from filing bk, that you have to take whatever amount is discharged and add that on your income taxes and pay taxes on that as if it was income? I hope he's wrong!! It seems as if the point is to get a fresh start, you would be starting over with a black could above your head if you suddenly have to pay taxes on the discharged amount.

Thanks so much in advance! Sara

No, you don't need to do anything with regard to taxes.

In fact, what happens behind the scenes is the Trustee actually files a tax return on behalf of the BK estate.

[Never_Again]

The confusion comes from the fact that if you have debt forgiven (outside of bankruptcy), you will receive a 1099 and have to claim that as income. Bankruptcy does NOT require this, and is probably not likely to change, no matter who gets in The Whitehouse.

Person at Hubby's work clearly does not have any knowledge of "something new." Make sure you tell him that, and you can gloat a bit if you want.

[magyar123]

No, you don't need to do anything with regard to taxes.

In fact, what happens behind the scenes is the Trustee actually files a tax return on behalf of the BK estate.

Huh??? What is done behind the scenes? And when?

[HHM]

Huh??? What is done behind the scenes? And when?

It's nothing you need to be concerned about.

But, the reason the debtor is not responsible for any taxes is because they create a new legal entity (the bankruptcy estate), and it is the estate that files a tax return...no tax is ever paid, but a token tax return is prepared by the trustee on behalf of the debtor's BK estate.