Results 1 to 4 of 4
  1. #1
    Join Date
    Apr 2009
    Posts
    2

    Unhappy Deductiblility of Settlements with Bankruptcy Trustee

    I was involved in some complicated litigation in federal court in 2006 that resulted in my 1992 chapter 7 bankruptcy being reopened. The reason being that I had not properly included my one percent interest in a non-public corporation gifted to me in 1975 by a cousin. Once the 1992 bankruptcy was re-opened the trustee asserted that I had been guilty of fraud and conspiracy and the attorney I had hired advised that I needed to respond to these allegations if I wanted to avoid the trustee obtaining a default judgment against me. The issues were litigated at length with the result that I incurred attorney fees amounting to more than $45,000 over three years. I eventually agreed to a settlement, without admitting to guilt on the civil allegations, which amounted to $35,000 and settled the case and closed the bankruptcy again.

    I understand from other posts here that the legal fees are not deductible and am wondering about the logic behind that.

    I also need to know if the settlement payment would be deductible.

    I was a legal resident of the state of New York during the entire period involved and am still a resident of that state.

    Thanks in advance.

  2. #2
    Join Date
    Oct 2006
    Posts
    16,474

    Default Re: Deductiblility of Settlements with Bankruptcy Trustee

    Quote Quoting pmerner
    View Post
    I was involved in some complicated litigation in federal court in 2006 that resulted in my 1992 chapter 7 bankruptcy being reopened. The reason being that I had not properly included my one percent interest in a non-public corporation gifted to me in 1975 by a cousin. Once the 1992 bankruptcy was re-opened the trustee asserted that I had been guilty of fraud and conspiracy and the attorney I had hired advised that I needed to respond to these allegations if I wanted to avoid the trustee obtaining a default judgment against me. The issues were litigated at length with the result that I incurred attorney fees amounting to more than $45,000 over three years. I eventually agreed to a settlement, without admitting to guilt on the civil allegations, which amounted to $35,000 and settled the case and closed the bankruptcy again.

    I understand from other posts here that the legal fees are not deductible and am wondering about the logic behind that.

    I also need to know if the settlement payment would be deductible.

    I was a legal resident of the state of New York during the entire period involved and am still a resident of that state.

    Thanks in advance.
    This is not an issue that can be answered on an internet message forum. You would need the advice of a tax professional who can review all of the related documentation.

  3. #3
    Join Date
    Apr 2009
    Posts
    2

    Default Re: Deductiblility of Settlements with Bankruptcy Trustee

    Thanks, I guess I misunderstood one of the earlier posts I had read here.

  4. #4
    Join Date
    Oct 2006
    Posts
    16,474

    Default Re: Deductiblility of Settlements with Bankruptcy Trustee

    Quote Quoting pmerner
    View Post
    Thanks, I guess I misunderstood one of the earlier posts I had read here.
    I doubt that you misunderstood the other post. Its simply that your situation is quite complicated and really cannot be answered without a review of your documentation.

    In some circumstances legal fees are deductible or are partially deductible. As a tax professional, based on what you have described here, I would not hazard a guess unless I could read all of your documentation.

    1. Sponsored Links
       

Similar Threads

  1. Chapter 7: Bankruptcy Trustee vs. Mortgage Holder (Bank)
    By Redgrizzlysf in forum Bankruptcy Law
    Replies: 1
    Last Post: 06-23-2011, 08:03 PM
  2. Bankruptcy Issues: Dealing With an Overzealous Bankruptcy Trustee
    By mike m. in forum Bankruptcy Law
    Replies: 1
    Last Post: 03-01-2011, 06:46 PM
  3. Chapter 7: Trustee in Company Bankruptcy Took Money Out of My 401k
    By cenote in forum Bankruptcy Law
    Replies: 4
    Last Post: 02-02-2010, 03:51 PM
  4. Chapter 7: Trustee Sale Date After Bankruptcy Discharge
    By ar2000 in forum Bankruptcy Law
    Replies: 1
    Last Post: 07-07-2009, 09:01 AM
  5. Bankruptcy Issues: Suing a bankruptcy trustee
    By locke999 in forum Bankruptcy Law
    Replies: 3
    Last Post: 05-02-2005, 11:06 AM
 
 
Sponsored Links

Legal Help, Information and Resources