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Do You Really Need to Report Discharged Debt in Bankruptcy on Your Taxes?

Posted By Allmand Law Firm, PLLC || 16-Dec-2013

Discharging Debt

Reporting Discharged Debt in Bankruptcy on Your Taxes

Some people may wonder if they need to report the amount of debt they got discharged in bankruptcy when they file their taxes. For the most part, this may not be anything to worry about although it is something you can review with your bankruptcy attorney or tax consultant for clarity purposes. There are several reasons why you may not need to consider reporting discharged debt amounts to the Internal Revenue Service (IRS).

Even though you submit dollar amounts in relation to the amount owed toward outstanding debt, the bankruptcy court may not consider the actual amount you owed when you filed for protection. When debt qualifies for a discharge the amount usually is not a concern, and it can actually be difficult to determine the actual amount since interest accrues constantly on the outstanding balance. This is why the court eliminates the debt entirely when granted a discharged.

In fact, there are many debtors who worry they have to report what was discharged, when they may be worrying about nothing. In most cases, when you file your taxes you are not asked about dollar figures regarding discharged debt from a bankruptcy filing. You could find out if you wanted to, but it may cost you more money and time on behalf of your attorney who completed your filing. There are legal experts who say the amount you got discharged is not considered income or something that gets taxed.

Reference: http://blog.nolo.com/bankruptcy/2013/11/06/do-i-have-to-report-the-amount-of-debt-discharged-in-bankruptcy-on-my-tax-return/

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