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Filing for Bankruptcy Does Not Create Tax Consequences

Posted in Bankruptcy

Filing for Bankruptcy Does Not Create Tax Consequences Written by Craig D. Robins, Esq.  Thanks to Long Island Bankruptcy Attorney I was prompted to write this article by the unusually large number of calls that I received last month from old bankruptcy clients and their tax preparers. For some reason, many tax preparers, not knowing how to treat bankruptcy for tax purposes, mistakenly believe that a taxpayer’s bankruptcy must either be reported on a tax return, or there would be tax consequences involving the concept of “debt forgiveness.” Understanding the concept of debt forgiveness is important as that may trigger tax consequences. However, bankruptcy does not. There May Be Tax Consequences for Forgiveness of Debt. I frequently represent clients with negotiating settlements of credit card debt as an alternative to filing for bankruptcy. Let’s suppose that I negotiate a...

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