Comments on: Is debt settled after dismissing Chapter 13 bankruptcy case, income tax exempt? http://howtogobankrupt.org/is-debt-settled-after-dismissing-chapter-13-bankruptcy-case-income-tax-exempt.htm Mon, 06 Feb 2012 00:00:45 -0500 http://wordpress.org/?v=2.8.6 hourly 1 By: Max Hoopla http://howtogobankrupt.org/is-debt-settled-after-dismissing-chapter-13-bankruptcy-case-income-tax-exempt.htm/comment-page-1#comment-3313 Max Hoopla Sun, 01 Nov 2009 09:41:39 +0000 http://howtogobankrupt.org/is-debt-settled-after-dismissing-chapter-13-bankruptcy-case-income-tax-exempt.htm#comment-3313 If the Chapter 13 was dismissed, it is as though it never happened. If the Chapter 13 was dismissed, it is as though it never happened.

]]> By: acermill http://howtogobankrupt.org/is-debt-settled-after-dismissing-chapter-13-bankruptcy-case-income-tax-exempt.htm/comment-page-1#comment-3314 acermill Sun, 01 Nov 2009 09:41:39 +0000 http://howtogobankrupt.org/is-debt-settled-after-dismissing-chapter-13-bankruptcy-case-income-tax-exempt.htm#comment-3314 Yes, it could well be taxable income, as is the case with any legally forgiven debt. Thus, if your creditors wrote off a total of $20,000 and they report such to the IRS (and they WILL), you would need to claim that as taxable income in the year in which the debt was forgiven. Yes, it could well be taxable income, as is the case with any legally forgiven debt. Thus, if your creditors wrote off a total of $20,000 and they report such to the IRS (and they WILL), you would need to claim that as taxable income in the year in which the debt was forgiven.

]]> By: bostonianinmo http://howtogobankrupt.org/is-debt-settled-after-dismissing-chapter-13-bankruptcy-case-income-tax-exempt.htm/comment-page-1#comment-3315 bostonianinmo Sun, 01 Nov 2009 09:41:39 +0000 http://howtogobankrupt.org/is-debt-settled-after-dismissing-chapter-13-bankruptcy-case-income-tax-exempt.htm#comment-3315 No, it is not exempt. It's taxable income to you. However if you were insolvent at the time of the debt forgiveness, the forgiven debt is not taxable to the extent that you are insolvent. You are insolvent if your debts exceed the value of your assets. You claim this on Form 982 http://www.irs.gov/pub/irs-pdf/f982.pdf but will need to attach a set of financial statements to prove your insolvency. For this reason it would be a good idea to seek professional assistance from a CPA or EA (NOT a seasonal part-timer at the tax prep mills!) if you are not familiar with the concepts behind setting up a balance sheet. You may want to weigh the cost of professional assistance vs just paying the tax on the forgiven debt. If the cost of professional assistance is more than the tax, it would make more sense to just pay the tax. No, it is not exempt. It’s taxable income to you. However if you were insolvent at the time of the debt forgiveness, the forgiven debt is not taxable to the extent that you are insolvent.

You are insolvent if your debts exceed the value of your assets. You claim this on Form 982 http://www.irs.gov/pub/irs-pdf/f982.pdf but will need to attach a set of financial statements to prove your insolvency.

For this reason it would be a good idea to seek professional assistance from a CPA or EA (NOT a seasonal part-timer at the tax prep mills!) if you are not familiar with the concepts behind setting up a balance sheet. You may want to weigh the cost of professional assistance vs just paying the tax on the forgiven debt. If the cost of professional assistance is more than the tax, it would make more sense to just pay the tax.

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