Over half a million people file for bankruptcy each year. Though it’s a common thing to do, many people who file do not understand the ramifications, particularly when it comes to their tax refund. Bankruptcy rules surrounding tax returns are highly complex and there are tiny details involved that must be considered. Let’s take a look at a couple of the most common issues.
Paying taxes on discharged debts. As a debtor, you’ll be required to report all of your discharged debt as gross income depending on the year in which a creditor forgave the debt. Contrary to popular belief, a debtor does not necessarily have to pay taxes on all of the discharged debt as there are certain exceptions. Your bankruptcy attorney can help you figure these out.
Tax refund forfeiture. To keep your tax refund, it would need to be classified as an exemption, which tends to vary. Any property you own must be forfeited if it’s not an exemption but again, these rules vary by state.
Post–bankruptcy tax debt. Keep in mind that filing for bankruptcy will only protect you from prior debt. Any additional or new tax debt you accumulate may not be protected from tax collectors.
This information is provided by Miami bankruptcy lawyer Alonso, Perez & Santos, LLP. Our areas of practice include bankruptcy, insurance litigation, debt harassment, credit card defense, foreclosure defense, immigration law, condominium law, business start-ups, and more. Call 305-676-7545 to speak with a Miami insurance attorney or bankruptcy attorney and receive a free consultation. We look forward to working with you.
This information is provided for educational or informational purposes only and should not be construed as legal advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice.