Saturday, January 28, 2017

Are There Tax Consequences for Filing Bankruptcy?

For the average individual, discharging a debt through a bankruptcy does not have a taxable consequence. This is often a reason for choosing to resolve debt through bankruptcy as opposed to debt settlement.

Internal Revenue Code §108(a)(1)(A) excludes debt discharged in a bankruptcy as taxable gross income. As such, there are no taxable consequences for a debt discharged in a bankruptcy.  However, debtors will sometimes receive a Form 1099-C, Cancellation of Debt in connection with a debt they discharged in a bankruptcy. If a Form 1099-C is received, a debtor should file a IRS Form 982 along with their applicable tax return. This form will tell the IRS that the sum included in the 1099-C should be excluded from their taxable income. This form can be found on the IRS website at

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