Tax Consequences of Bankruptcy

When your debts are discharged through the bankruptcy process, the IRS treats these debts as taxable income to you.  Any bank, credit union or other financial institution that writes off a debt for $600.00 or more must send you and the IRS a Form 1099-A or 1099-C at the end of the tax year.  When you file your taxes, you must then report your discharged debts.

However, if you were insolvent (debts are more than your assets) when your debts are written off, you may not have to report your discharged debt.  This exception may apply if you successfully complete IRS Form 982.  This is a rather complicated process and it is recommended that you consult with an attorney or tax professional.

If you have any questions about bankruptcy please call 1st California Law at (949) 735-8499 for a free attorney consultation.

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