YOU DO NOT HAVE TO PUT BANKRUPTCY ANYWHERE ON YOUR TAX RETURNS UNLESS YOU GET A 1099-C FOR DISCHARGED DEBT.*
Most of the time, you will not have to do anything differently on your tax returns because of a bankruptcy.
The discharge of your debt in bankruptcy is NOT taxable, according to the IRS.
What is even better, is that you usually don’t have to do anything to tell the IRS about this, because most creditors know that the bankruptcy discharge isn’t taxed and they don’t send a 1099-C for forgiven debt.
WHAT IF I RECEIVE A 1099-C FOR FORGIVEN DEBT AFTER BANKRUPTCY?*
Every year a few of my clients get a 1099-C for forgiven debts, which is also sometimes called discharge of indebtedness.
If you get a 1099-C, then you must fill out a FORM 982 and file it with your tax return.
You should check the box which says that the discharge of indebtedness occurred in a Title 11 Case.
Title 11 is the bankruptcy code; I don’t know why the form doesn’t simply say bankruptcy, that would be much more clear.
Creditors are only supposed to send a 1099-C when the loan is forgiven for a reason OTHER THAN bankruptcy, such as:
- Settling it for less than the full balance
- A government program
Sometimes the creditors have bad records, and send the 1099-C anyhow.
If you get a 1099-C, that means that the creditor also sent it to the IRS, so you should file the FORM 982 to explain to the IRS why you don’t owe taxes.
WHAT HAPPENS TO TAX REFUNDS IF I FILED BANKRUPTCY?
Most of my clients get to keep their tax refunds after bankruptcy.
Walker & Walker Law Offices, PLLC makes it a priority to help our clients keep their tax refunds.
We know what a big difference a good refund makes in the budget of a working family.
Whether or not you get to keep your tax refund after filing bankruptcy depends on:
- What other property you own
- Whether you are filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy
You should speak to your Minnesota Bankruptcy Lawyer about whether or not your tax refund would be protected in a case.
We always discuss tax refunds with our clients before filing, and we can usually protect them.
CONCLUSION
If you want advice about bankruptcy and your tax returns, then call us at 612.824.4357 now, and tell us what you need to know.
*This is not tax advice. You should speak with a lawyer and an accountant about how tax and bankruptcy laws apply in your case. Reading this article does not create an attorney/client relationship, nor does it obligate Walker & Walker Law Offices, PLLC to handle your tax matters or provide further advice.
