How does filing Chapter 7 effect my tax returns?

hello!
according to bankruptcy courts, tax refunds or a portion of it can be considered as a part of your assets, which are taken up by the trustee appointed by the court, who in turn converts them into cash to pay up to your creditors. but there are exemptions on them and it differs from state to state, and you need to find out the laws of your state.
however, assets are those that you possessed at the time of filing bankruptcy. so only the tax refund for that particular time or year will be considered as asset. the tax refund of the subsequent years will remain with you.

I was in KS the first time I had to file (sep & divorce). Depending on when you file. Mine was filed toward the end of the year, I believe and they kept 3/4 of my tax return that year. I would talk to your attorney, if you have one, and see what he/she has to say. They would be more able to answer that question in regards to your particular state.

I guess I didn't word that right or something because my question isn't so much about what I would be getting back. I have heard that when you are filing your taxes and you get to the question about capital gain you have to claim all discharged debt as a capital gain. I wanted to know if this was true or not because I have about $45,000 in debt that is going to be discharged with the Chapter 7. I am worried that next year I will file taxes for 2008 and have to claim this $45,000 as a capital gain.

As far as what I get back, my lawyer told me to just wait until after the 341 meeting to file and the tax return would then be mine to keep.

I am no professional but from my knowledge-NO you would not owe taxes on the debt that was discharged through bankruptcy. I know if you settle debts you would receive a 1099 and YES that would have to be claimed but then there is the subject of being insolvent. Talk to your attorney. He will know. If I see mine soon, I will ask as well. Good luck to ya.

girl in debt! you are so helpful and nice!

Thanks for your reply, I just had my 341 yesterday. Apparently the rule is any discharged debt is a capital gain, but bankruptsy is an exception to the rule so it does not count. As fr my taxe return for 2007, it falls under my "wildcard exemptions" and I get to keep the entire thing. Finally my life can begin again!

we just did this well my fiance did. We were afraid that cause we canceled the debt that we would be taxed on it. You know like you are when you settle. And nope they dont even take the bankruptcy into consideration on your tax return

I am glad I read this thread, as I was wondering how my discharged debt was going to affect my 2008 tax return. I'm glad it won't be an issue. Since the debt discharged in bankruptcy is exempt from capital gains, I'm assuming the amount of debt discharged doesn't even have to be listed on the tax return?

WE recently filed chapter7 and it was discharged in August 2008, i am concerned how this would affect our income tax for this year tax return. Our accountant believes we would have to claim the amount discharged on our taxes as income and pay tax on that amount. We live in PA

Your accountant needs to do some studying. You dont claim anything you discharge in bankruptcy.

if you are not 100% confident in what your accountant said, get a new one! You need to have faith in them, and if they are wrong about the above question, they are probably wrong about other things too.

I filed chapter 7 for two homes in 2008 and got discharged
it's now 2009 and I am waiting for whatever the form I'm supposed to get from IRS about it .. I mean if there is any

I'm not sure if it's better to hire an accountant todo my tax sin e I usually did myself online

how much is CPA to do tax? I had four loans

will I get 1099 etc and what if now I have enough money in my bank??

My accountant cost me and my husband $80 each year she filed, and it was pretty involved being that one was old and never filed or paid, and with moving, change of jobs, employed to self employed, etc. I thought it was a very good deal for the amount of work she had to do.

my husband filed bankruptcy and was discharged in 2008. We received a 1009C from one of the creditors but I am not sure if we have to claim this on our taxes (I did not file bankruptcy). Obviously he does not want to mentione this to our tax accountant if it is not necessary.

we filed chapter 7 and had our 341 meeting on Dec19th, 2008 IT HAS NOT BEEN DISCHARGED or closed yet,our lawyer had to re submit some stuff in Jan 2009,we filed our taxes in late Jan of 09 and are getting back about 8500 that we will use to catch up and pay ahead on stuff,We asked our Lawyer if we will lose it he said the trustee never asked about it at the 341 meeting so dont worry about it, our lawyer is a bonehead and is not to reassuring and gets mad if we ask him questions, so we are stressed about losing our refund, we live in Minn, and do the trustee monitor your bank account? we are having our refund direct deposited, our lawyer said no they dont. thanks

Here is what my lawyer said when I asked a similar question.

If you file a joint tax return, for the purpose of the Chp. 7, half of the joint refund is yours and half is Mike???s. In the 7, if you have not received your tax refund prior to filing then the Trustee can take your ?? of the refund. On the other hand, if you wait to file until after you have received your tax refund and you spend it on necessities then the Trustee is not entitled to your ?? of the refund. Necessities include paying your attorney fee, a mortgage or car payment, gas, groceries, those kind of things. Keep up with where you spent your ?? of the refund because the Trustee may ask you how you spent it.

I talked to my husband's attorney this morning and they told me it did not have to be claimed. However I was not satisfied with this anwers after readin the info on the IRS website. So I called the IRS today and found out that bankruptcy does not have been claimed as income on your taxes. However, there is a form 982 that is required to be filed with your 1040 stating the amount of discharged debt. You then have to reduce your tax attribute basis by this amount.

i filed chapter 7 , then filed my taxes and Im getting a refund, my question is will they take my refund,and if I spend it before they ask for it then what?

I am not sure how things are done in each state, but the attorney I had in KS had told me that what the trustee can touch depends on when you file. So if you file at the end of the year, they have the whole year they can get in regards to your tax refund and if you file at the first of the year, that usually cannot get anything. Again, I do not know if this applies to all states.

Dear Guest - Sounds like your lawyer really is a bonehead. The trustee doesn't monitor your bank account BUT has the right to ask for income tax returns. The way you can tell is if your trustee asks to see your income tax return for 2008. Ours did in a letter BUT not until after our case (also chapter 7) was actually DISCHARGED! So I am anticipating that if we get a return, she may take all or part of it for the creditors.

The trustee settles with the creditors - this is separate from the court discharging your case. If I were you ... it's a bummer but ... I would save as much of that $8,500 as possible. Don't pay ahead on stuff because there is a very good chance the trustee will ask for part of the $8,500. Better safe than sorry. If you don't have the cash on hand when the trustee asks for it, you will have only 90 days or so to come up with it via a payment plan.

Because you filed late in the year, the trustee might try to claim most of it to redistribute to your creditors. Let's say you filed in October, the trustee might try to claim 10/12 of it (ten of the twelve months of the year).

Probably not the answer you were hoping for but the safe way to be sure you won't have to come up with $7,083 (that's 10/12 of your return as I mentioned above).

Everyone here is right...well a little. Although not 100%.

1. Regardless of solvency, you must file the 1099's you receive with your tax returns (you don't have to report it as income, although you do need to inform the IRS). The creditor will, so if you will be hearing from the IRS in the future on owing debt if you don't.

2. To avoid owing debt, you send a copy of your BANKRUPTCY SCHEDULE WITH A COPY OF YOUR PREPARED TAX RETURN to the IRS to show you were insolvent (which is why you filed Bankruptcy) at the time you canceled the debt. This goes for mortgage and unsecured canceled debt.

3. Normally, before 2007's Mortgage Forgiveness Debt Relief Act
(http://www.irs.gov/irs/article/0,,id=179073,00.html)

this wouldn't have applied to insolvent people like us on this thread but Bush passed the bill, and amended it in 2008.

This information should help those of you who have already received a DISCHARGE in 2008 or later so when you file your taxes this tax season you won't need to include the 1099 interest in your income (you don't have to report it as income, although you do need to inform the IRS as noted above).

3. If you DIDN'T FILE BK, but agreed to a settlement (i.e. you worked with a Debt Settlement Company or Credit Consumer Co) in which they agree to reduce the amount of debt including the interest in exchange for a faster payoff) you SHOULD be expecting a 1099 and that you must include as income in your taxes. DEBT SETTLEMENT COMPANIES don't tell you this, though do they? And all that interest you saved? Ha...you pay it taxes on it at the end of the year through your income tax return.

Hope this helps...

My husband filed chapter 7 September 2008 and got his discharge December 29, 2008. We filed our 2008 taxes and got our state back but the trustee got all of our federal return 7900 worth. All my husband filed bankruptcy on was mediacal bills and like cable tv bills. No real estate No actual property! Why did this Happen?

I didn't receive any 1099's this year for any discharged debt and we did not mention the bankruptsy on our return....should I be concerned?

I too had my 341 meeting on dec 19, 2008 in Texas. I filed my taxes on 2/2/09 and was expecting the refund to be deposited to my account on 2/13/09. when it didn't get deposited that day, I called the IRS and they said the Bankruptcy is holding it up. So, with this said, I don't think it is a matter of hiding the refund from them as they proactively sent the IRS a letter to hold it. I just looked at the list of creditor that were to be notified and the IRS was one of them.

Please forgive my ignorance but does filing chapter 7 affect my tax rebate for the following year? Thanks for any response.

We filed Chapter 7 a few months ago and were nervous to turn in our 2008 tax return because we were getting a refund of over $3800. We thought for sure the trustee was going to keep it. Like everyone else, times are tough and we needed that money.

We talked to our lawyer and found out we were able to keep the money-all of it. Depending on where you live (state), you more than likely will be able to keep your return. If working with an attorney, they may be able to protect your refund if they use the available exemptions. The only way they can do that is knowing that you are getting a refund. If they don't know and the appropriate paperwork is not done, your tax return is up for grabs. The trustee will take it to pay your creditors.

I filed my income tax on 4/15/09, I filed Chapter 7 in 2008 and was discharged on 12/4/08. I found out my return was sent to the Trustee. Would I then lost that refund, if so, why didn't my attorney counsel me with regards to that. Texas

I filed my income tax on 4/15/09, I filed Chapter 7 in 2008 and was discharged on 12/4/08. I found out my return was sent to the Trustee. Would I then lost that refund, if so, why didn't my attorney counsel me with regards to that. Texas

Hi Sophie,
Months after your Chapter 7 was discharged, you filed your '08 taxes and were due a refund and it went to the trustee? I think that is what I read. If so, I would definitely get in contact with your attorney. For one, I have never heard of that in a Chapter 7 case and 2 if the attorney knew you were due a refund, depending on the allowed exemptions in Texas, he may have helped you as far as keeping the refund.

I am not sure about the laws in Texas and I am a little stumped on this one. Please update with how it all worked out. Definitely call your attorney though.

Hi Sophie,
Months after your Chapter 7 was discharged, you filed your '08 taxes and were due a refund and it went to the trustee? I think that is what I read. If so, I would definitely get in contact with your attorney. For one, I have never heard of that in a Chapter 7 case and if the attorney knew you were due a refund, depending on the allowed exemptions in Texas, he may have helped you as far as keeping the refund.

I am not sure about the laws in Texas and I am a little stumped on this one. Please update with how it all worked out. Definitely call your attorney though.

I filed a chapter 7 last year and got discharged in October 2009. Part of the chapter 7, bank took away my house and my cpa is telling me that I have a capital gains tax. I haven't received a 1099Anor c yet. My bankruptcy attorney said differently. Can someone answer this?

Hi David,

I got 100 different answers too about capital gains when I sold my home through a short sale. It seems a lot of people are stumped on this one. Did you ask your CPA about the Mortgage Forgiveness Act? That may come into play here.

I got these 2 articles off the IRS site. See if these can help ya out.
http://www.irs.gov/individuals/article/0,,id=179414,00.html

http://www.irs.gov/newsroom/article/0,,id=174034,00.html

Your CPA is wrong...I'd find another accountant for next years taxes!! :lol:

is it true under the new law that when you file your tax returns that you have to sign the check over to the judge or the trustee and especially if it over 6000 that you are only allowed 5500?

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It depends a lot of times on the trustee you get. Trustees work on a commision base but if you have no assets, the trustee does not question it and after thirty days you receive your discharge there is no questions from US trustee you dont need to worry. It happend to me. You will be able to keep the refund. Also you will start to receive 1099C from all creditors who you listed on your bankruptcy filings. Your accountant should know so these documents are properly entered into your tax return. Any 1099 forms that you have received must be reported in your taxes because the IRS also received a copy of that document.

i filed chapter 7 in sept.09 and it was discharger in jan of 2010 now im wondering if im going to get any of my tax return.the irs says theres a hold on them and they cant tell me nothing for 8 weeks.my return is close to 8,000 but its mostly credits i qualified for so will i get any of my money and when?

i am about 46,000 in credit card debt all in my name i am looking into chapter 7 bankruptsy i am married and i dont want this to ruin his credit we have never been late on any payments the morgage the home equity loan and the camper are all in both of our names what can happen and what should i do help

You probably should speak to an attorney. With joint assets including a camper that could be considered a luxury item, you need professional advise.

Rest assured that you are not required to post as capital gains anything discharged as debt under tax laws. The rules governing indigent apply so by having the debt discharged, you are deemed unable to repay the debt. (sorry, don't want to sound rude.) In many cases of Chapter 7 bankruptcy, if you lose a house, you will receive a 1099 from the bank indicating last payoff ballance. If that was a capital gain, you may have to file bankruptcy just to cover it. Rest easy, you do not have to report. This is why tax preparers don't even ask.

Hi I live in california, I am a single mother and cant afford my doctors bills so I am planning to file for chapter 7. However, im just concerned that I will loose my first "nice" tax refund since this next year will be the first time i claim my newborn. Do you guys know if I will loose my return or how does that all work?

Depends on when you file. If you have received this years refund (and have spent it already) and file now for chapter 7, you will be discharged long before filing for next years. So you wont loose next years.

Rosy, I live in a different state but I just went in May to court for my bankruptcy. A couple of the cases before me had received big tax refunds and the judge asked what they did with that money. Talk to your attorney about whether or not the court will take your refund. It might be better to fill out a new W-4 form so that you are having less withheld from your paycheck so that your refund isn't so big.

so i've read a lot on here about tax returns and im still as confused as i was before i started! im in south carolina and i have yet to find anything set in stone about what happens to it. im in the process of filing ch7 and my attorneys office keeps telling me "they don't normally touch it". well there is a huge difference in "they can't do anything" and "they don't normally touch it".

has anyone found a website that might be able to clear it up the questions at hand?

Blackbeasst, when you file chapter 7 bankruptcy, all your assets will be taken into consideration. The bankruptcy trustee will consider all your available assets in order to pay off your creditors. The tax returns too comes under your assets. However, some parts of your assets are exempt from this. Now, whether or not your tax return can be taken depends on the time you filed your tax returns. You can consult a different attorney regarding the tax returns.

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My husband and I have been in this debt reduction program for a year and a half, so far 2 credit cards have been settled, another one just file against us in court without our knowledge and we have been ordered to start paying 10% of my husband income to this card so we are considering filing chapter 7 so the rest of the cards can't do the same..I talked to a lawyer today and he said that our property was safe because it falls under 100,000 in value and our cars are over 10 years old and have over l00,000 mileage so they can't take that either. He also told me that we could get back the money that we paid the debt reduction service and also the money that we already paid off to the 2 creditors, does anyone know this to be true? Also, not all of our cards are in the debt program, do we have to include the ones that we are making ontime payments on?

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Hello...

I just filed chapter 7 in Maine. I don't have any assets. Hard to believe, I know. You ask why I would file bankruptcy then. Well, it was to clear up money that I owed the IRS from 5 years ago. I owed the IRS 15,000 (which includes late fees and interest but the original balance was 10K) and it was income tax. So, it was discharged in a chapter 7 bankruptcy after 3 years and some stipulations. I had a couple of collection accounts and 3 credit cards two that were under $600 and one that was over 5 years old that was around $1200.

My question is: I need to do my 2010 taxes and I the bankruptcy was finalized as of December 2010. I haven't received any 1099-C forms to date.

Do I need to claim this bankruptcy in my taxes as income? Do i need to include that 982 form that everyone on this form refers to from the IRS website? Will I have to pay taxes on the IRS debt that was discharged? That is the real concern...I don't care about the collection accounts or the minor credit card stuff.

I have contacted several Tax Preparers and My attorney (he tells me they aren't tax specialist so they don't give that sort of advice and I need to have my taxes done professionally by a tax attorney or preparer). I can't afford a tax attorney. But I also can't afford another mess on my hands so I am so confused and lost here. Any help would be great.

As far as I know, back taxes do not get discharged in bankruptcy filing. Nevertheless, the debts that have been forgiven in your bankruptcy filing will be considered as your income and you'll have to pay taxes on it.