Books on bankruptcy
Are there tax consequences for filing bankruptcy?
For the average individual debtor, receiving a discharge in bankruptcy has no tax consequences. The Internal Revenue Code §108 excludes the discharge of debt in bankruptcy from its definition of cancellation of debt income. Outside of bankruptcy, cancellation of debt may be treated as if it were income for tax purposes.
If you have received an IRS 1099(c) on a debt discharged in a bankruptcy case, you can file Form 982 to tell the IRS that the sum on the 1099 should be excluded from your income by reason of your bankruptcy.
Note that the debtor's tax attributes, such as loss carry forwards and exclusion of gain on sale of a primary residence, as they exist before bankruptcy, pass to the bankruptcy estate and may be used or even exhausted by the trustee in the administration of the estate. See how tax losses in hands of trustees alters the liquidation analysis and therefore exemptions.
Get good tax advice before venturing into bankruptcy if your tax situation is complex. IRS publication on bankruptcy and tax.
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