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Consumer Bankruptcy Tax Debt Relief Office in Greenbelt, MD

What should I know about filing taxes during bankruptcy?

Filing your taxes is often confusing. It becomes even more so after filing bankruptcy in Maryland. There is one part of the tax law that may concern you a little in regards to your bankruptcy and the discharged debts. According to U.S. News and World Report, the IRS generally considers any forgiven debt as income. This could really cause alarm for you because all of the debt discharged in your bankruptcy is technically forgiven debt. So, should you be fearful of a large tax liability due to your bankruptcy?

While the general rule is that your discharged debt is taxable, the law has an exemption for this situation. So, you should not worry. Any debt discharged through bankruptcy is not taxable under the IRS rules.

The government is actually on your side in this case. It recognizes that you have gone through a tough financial situation. Coming out of a bankruptcy leaves you in a very vulnerable financial situation. It is likely you have very few assets left, and you certainly do not have savings to pay for any unexpected tax debts. The government gives you a break on your taxes and does not hit you with a large tax liability that would probably cause you financial distress at a time you are supposed to be rebuilding your finances.

If you have already filed your taxes and paid for your discharged debt as income, you can amend your return and get that money back. Your bankruptcy paperwork can serve as proof that the forgiven debts qualify as except under tax laws. This information is for education and is not legal advice.