Will I have to Pay Taxes on the Debts that I Discharge in a Bankruptcy?

Now that it is 2011 people tend to get ready to file their taxes in hopes of obtaining a refund.  So it is that time of the year that I hear the same question asked repeatedly by clients, “If I file for bankruptcy will I have to pay taxes or a tax penalty on the debts that have been discharged?”  The answer to that question is NO.  You will not be responsible for any taxes or tax penalties for the debt you will be discharging.

However, if you choose to do debt settlement rather than to file for bankruptcy you will be responsible for the taxes on the debt you save.  Here is an example.  You owe 50k on a credit card and you settle it for 20k (a savings of 30k).  The IRS will consider the 30k savings as ordinary income and you will be responsible for the taxes on the saved amount.

The filing of a bankruptcy can help you enjoy a fresh financial start.  If you would like to schedule a free consultation to determine if bankruptcy is right for you, then please contact Shmucher Law, PL at 954.309.5559 or 305.741.5553.  We offer free bankruptcy consultations in Boca Raton, Fort Lauderdale, Miami, Plantation and Sunrise Florida.

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