Reporting Discharged Debt in Bankruptcy on Your Taxes
Some people may wonder if they need to report the amount of debt they got
discharged in
bankruptcy when they file their taxes. For the most part, this may not be anything
to worry about although it is something you can review with your bankruptcy
attorney or tax consultant for clarity purposes. There are several reasons
why you may not need to consider reporting discharged debt amounts to
the Internal Revenue Service (IRS).
Even though you submit dollar amounts in relation to the amount owed toward
outstanding debt, the bankruptcy court may not consider the actual amount
you owed when you filed for protection. When debt qualifies for a discharge
the amount usually is not a concern, and it can actually be difficult
to determine the actual amount since interest accrues constantly on the
outstanding balance. This is why the court eliminates the debt entirely
when granted a discharged.
In fact, there are many debtors who worry they have to report what was
discharged, when they may be worrying about nothing. In most cases, when
you file your taxes you are not asked about dollar figures regarding discharged
debt from a bankruptcy filing. You could find out if you wanted to, but
it may cost you more money and time on behalf of your attorney who completed
your filing. There are legal experts who say the amount you got discharged
is not considered income or something that gets taxed.