Does Discharged Debt from Bankruptcy Get Reported on Federal Income Taxes?
During tax season the question often arises regarding discharged debt
and whether it has to be claimed as income on federal income taxes. This
widely depends on whether the creditor acknowledges discharged debt as
being canceled debt. If this is the case debtors may receive a 1099c form
from the creditor to include when they file their return. In many cases
debtors will not have to worry about this, but this is something you can
review with your bankruptcy attorney for further clarification on exceptions
to the rule.
Income recorded on federal income taxes often does not include discharged
debt from bankruptcy. The IRS may provide more information for clarity
on your unique situation. This is true for any bankruptcy chapter filed
Chapter 7 , 11 and
Chapter 13. The debt has to be successfully discharged, meaning if you filed for
protection and your case was dismissed before the debt could be discharged,
the exception may not apply.
In some cases if you were declared insolvent you may not have to worry
about reporting anything on your federal income tax return. In short,
this is where it is proved that what you owed debt wise was valued more
than the value of your assets at fair market value, including items with
a lien or those that may be considered exempt under the bankruptcy code.
The Internal Revenue Service (IRS) has additional information on this
matter you can review via publication p4681.