bankruptcy and my house
We have recently had our bankruptcy discharged. We are giving back the house, will the discharged debt be considered income? If so how are we supposed to be able to pay those taxes when we are broke?
thanks,
Josh
2 Answers from Attorneys
Re: bankruptcy and my house
Normally, Cancellation of Indebtedness is considered Taxable Income. The exception is if the taxpayer is bankrupt or insolvent. Since you filed a Chapter 7 Bankruptcy Liquidation, you will not be taxed on the COD income. If you have any further tax questions, please check my website http://www.taxesq.com/
Re: bankruptcy and my house
Generally debts discharged in bankrupcy are not taxable (it is referred to as discharge of indebtedness income). If that is the case then you are required to reduce certain tax attributes that you have. This assumes that the debt was in fact discharged in bankrupcy, and not outside of the bankrupcy. Your bankruptcy attorney should be able to advise you as to the tax consequences. Hope that helps.
Disclaimer: you should not rely on this post as it does not take into consideration your unique facts. This post is not tax or legal advice. You must contact your advisors to discuss your situation.
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