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  1. #1
    Join Date
    Mar 2006

    Default Filing Taxes After Chapter 7 Discharge

    I was granted a chapter 7 bankruptcy discharge last may 2005, in a no asset case. I read something about claming bankruptcy debts forgiven on taxes and tax attributes. What is this talking about and do I have to include this on my taxes. Please help!

  2. #2
    Join Date
    Sep 2005
    Behind a Desk

    Default Forgiveness of Debts

    You seem to be reading about forgiveness of debts, not bankruptcy. When you settle a debt directly with a creditor instead of filing for bankruptcy, the creditor will ordinarily report the reduction to the IRS and it will be taxable as income. (e.g., you have a $5,000.00 debt and negotiate a reduction to $2,000.00. The Lender will report the $3,000.00 difference to the IRS, which will ordinarily treat that $3,000.00 amount as taxable income.)

    In contrast, you should not have any tax obligation for debts discharged in bankruptcy - the rule for private negotiation of debt does not apply. The trustee of the bankrupt estate would ordinarily file a tax return for the bankrupty estate as described here.

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