How does filing Chapter 7 effect my tax returns?

Nekogirl,

You are correct. If you met the 5 prong test for the taxes, they were discharged. If you did not meet all 5 prongs you still owe the tax. Assuming you met the test and have now discharged all taxes, penalties and interest along with any other debt you may have had, you will not incur a tax consequence. There simply is no "forgiveness of debt" income when you discharge debt through a bk. (See IRC Section 108 - I think that's the Section #)

As to receiving 1099's, the creditor technically does not have to issue one unless the creditor is aware that the debt was related to a business venture. Some creditors will issue them anyway. If you get one then you use the form found at:

http://www.irs.gov/pub/irs-pdf/f982.pdf

You should consult with a qualified CPA before completing your tax returns. Using a CPA will ensure proper preparation of the tax returns.

Best of luck.

Des.

We filed CH 7 in 2010, it was discharged in october 2010, do i include the discharge amount anywhere on my tax return for the tax year 2010? I am so confused. Our house was not involved in the bankruptcy, we kept that. Thanks much!

WOW... I was under the assumption that IRS and school loans could NOT be discharged in a Bankruptcy... you are lucky :D

itsamomthing... As far as I know, you will have to mention the forgiven debt amount in your tax documents. Have word with a tax adviser and he/she will be able to assist you in a better manner in this case.

I can only say this was an accidental fine that by paying all my medical bills with credit in the year 2009 I got a huge $5,000 tax return because even paying it with loans or credit cards counts as paying it. Then I had to file bankruptcy in 2010 due to a change in job status and huge credit debt due to those hospital bills. I was granted chapter 7 and didn't have to report it on my taxes, why I say this is kind of a loophole.