Tax Considerations for Your Bankruptcy Filing
Los Angeles Bankruptcy Attorneys Can Help You Understand
Debt problems can affect your tax status in ways you wouldn’t expect. If you are considering bankruptcy to solve your debt problems, it is important to understand potential tax implications. At Resnik Hayes Moradi LLP, our lawyers have the experience to help you see how bankruptcy will affect your entire financial picture, including tax considerations. We are committed to helping you achieve debt relief while avoiding any unnecessary tax liability.
Contact our firm for a free consultation with a Los Angeles bankruptcy attorney. It could be your first step on the road to debt relief.
Does Bankruptcy Have Tax Consequences?
In most cases, filing for bankruptcy has far fewer tax consequences than other debt relief options. For instance, if you work out a debt settlement with a lender, and your debt is reduced, the IRS will likely consider the reduction income and tax you on it. If you settle with a mortgage lender, and your home loan is reduced by $100,000, you just “earned” $100,000 in income and will be taxed on every penny of it.
This does not happen in bankruptcy. If you file for bankruptcy and receive a 1099 form from a creditor claiming you made income from a discharged debt, you should file a 982 form advising the IRS that the debt was discharged in bankruptcy and should have no tax consequences.
Bankruptcy & the IRS
Filing for bankruptcy enacts the automatic stay, which stops creditors from taking collection actions against you, including actions by the IRS. However, it does not stop the IRS from auditing you, making tax assessments, or demanding you file your tax returns. It is also important to note that filing for bankruptcy may affect your tax status in terms of what exemptions you are allowed or not allowed to take.
There are many tax considerations to make when filing for bankruptcy. Every case is different. If you have questions about how bankruptcy will affect your tax status, it is wise to consult with an experienced Los Angeles bankruptcy lawyer.
Contact Resnik Hayes Moradi LLP
Our offices are open weekdays from 7:00 a.m. to 7:00 p.m., and we serve clients in the Los Angeles area and San Fernando Valley through offices in Sherman Oaks and Los Angeles.
Schedule your free initial consultation by calling our firm at (213) 344-0043.
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