Tax Implications regarding discharged debts?????

[discharged CH7]

Filed 9/21/06
341 continued 11/1/06
341 12/13/06
discharged 1/19/06 who hoo!
closed 1/26/06 yeah!

I realize there shouldn't be a tax burden on the discharged debts (no taxes or anything just cc's, medicals and did not re-affirm cars and house) however is it still possible to do our own taxes as we usually do with turbo tax? I assume I have to fill out some kind of schedule showing these debts. Also, wasn't discharged until 2006, so is it next year's tax return where I have to show the discharged amount?

[StaciMM]

It won't impact your taxes at all. File as usual, there is nothing to do differently regarding the BK and filing taxes.

[discharged CH7]

Thank you for the response, StaciMM but I read some where about a schedule you need to attach to your return even though no taxes are due on the discharged debts. (928? I think) If you are saying that's not true, then you just filed your taxes as usual and did not list anything about the bankruptcy? I am sorry to be a pain, we just don't have the money to have our taxes done by someone else and after you are discharged your lawyer is no where to be found.
Thank you for any response.

[Minnymouth]

You file your taxes as usual, no changes....

The Trustee is the one who files the tax papers regarding your bankruptcy......

You do not list or note anything on your taxes regarding your bankrupty.....

If you loose a $100,000 home in bankruptcy it will not show on your tax return....

This is the Trustee's problem........... he does all the paperwork for the items, information regarding your bankuptcy.

[JimH]

I believe what you are confused over is when a debt is canceled outside of bk the amount canceled or forgiven is considered income that is taxed to the person owing the debt. If a debt is canceled under a bankruptcy proceeding, this does not apply - the amount canceled is not income.

[bkfiler]

Filed 9/21/06
341 continued 11/1/06
341 12/13/06
discharged 1/19/06 who hoo!
closed 1/26/06 yeah!

I realize there shouldn't be a tax burden on the discharged debts (no taxes or anything just cc's, medicals and did not re-affirm cars and house) however is it still possible to do our own taxes as we usually do with turbo tax? I assume I have to fill out some kind of schedule showing these debts. Also, wasn't discharged until 2006, so is it next year's tax return where I have to show the discharged amount?

yes, it is 2006 taxes - filed in 2007 - that could have any tax situations for you. which i doubt you have. but if you are discharged in 2006 then any issues will have to do with 2006 tax filing when you go to file them in 2007.

[discharged CH7]

Thank you all VERY much, the stress of all of this has gotten to me. I thinks it's because I am still getting used to the idea that we now have NO DEBT!!!!
It's hard to believe but I am sure I will get used to it pretty darn quick.

[SinkingFast]

I believe what you are confused over is when a debt is canceled outside of bk the amount canceled or forgiven is considered income that is taxed to the person owing the debt. If a debt is canceled under a bankruptcy proceeding, this does not apply - the amount canceled is not income.

That's my understanding from every thing I've read.

You don't have to file BK. You can just ride it out. Eventually, creditors will get tired and write off/discharge the debt. Same can happen with something you forgot to list in your BK. The creditor can eventually just write off/discharge the debt. That's called an R9. Any debt discharged as an R9 becomes tax liable income to the debtor in the year it's written off/discharged.

[Callie]

That's my understanding from every thing I've read.

You don't have to file BK. You can just ride it out. Eventually, creditors will get tired and write off/discharge the debt.

Not always. If they are real jerks, they will go for a wage garnishment.

[SinkingFast]

I can well imagine there's lots of steps and pain between stopping payments and having a debt voluntarily discharged by a creditor. Kinda like sharks in a feeding frenzy??!!

Just going direct from A to B for the poster in this particular case to kinda explain the R9 status thing.

[StaciMM]

Charged off is not the same as discharged. It is only a term for the creditor, means nothing to debtors really. A charged off debt is still owed, and often still adding interest. The creditors just moves it out of their asset category, as they are no longer expecting payment on it.

If the creditor forgives that debt, or a part of it, THEN it becomes taxable as income.

About R9... Every account on your credit report is somewhere between 0-9. An account too new for a rating is a 0, paid as agreed is a 1, 30 days late is a 2, 60 days late is a 3, 90 days late is a 4, 120 days late is a 5. Between 6-8 things get fuzzy, I think 8 is a voluntary repo though. 9 is a charge off. Accounts get a letter to indicate what type of account it is. I (installment) and R (revolving) are the most common. I believe O (open) would be a pay in full type, true charge account. So-an R9 is a revolving account that was charged off. Don't assume that you don't owe it once its charged off-that is usually the point where a collection agency comes in. Once the original creditor gives up expectation that you're going to pay the account, they don't mind splitting any proceeds with someone else, figuring half of something is better than nothing and they don't want to put any more man hours into it.