Legal Question in Tax Law in Maryland

Will I owe taxes on truck loan

I received a no asset chap 7 bankrtupcy discharge Jan 2008. A dump truck, financed with a bank, is still in my posession and the bank is willing to let me have the title, lien free, in exchange for a CD they have been holding for collateral. They do not want the truck anymore. Will I owe tax on the forgiven amount since this entire debt was discharged in the bankruptcy. I would like to keep the truck. Would this arrangement constitute a new contract with the bank? I could not afford to pay taxes on the large amt that will be written off by the bank.

Asked on 3/17/09, 10:14 pm

1 Answer from Attorneys

Burton Haynes Burton J. Haynes, P.C.

Re: Will I owe taxes on truck loan

You have the right idea about discharge of indebtedness income (DOI). Often you do have to recognize income in an amount equal to a debt of which you are relieved. However, there are several exceptions to this (found in sec. 108 of the Internal Revenue Code). The one that is applicable to your case is that you do not have to recognize DOI if the discharge occurs while you are in bankruptcy. File Form 982 with your tax return to deal with the DOI and invoke the sec. 108 exception.

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Answered on 3/17/09, 10:34 pm

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