Bankruptcy Relief From Cancellation of Debt

An important and often critical advantage of debt relief through bankruptcy is the ability to discharge debt in bankruptcy and not pay taxes on the forgiveness of debt. This is true despite the fact that this same forgiveness outside of bankruptcy could have serious and negative tax ramifications. Specifically, debt forgiveness outside of bankruptcy is a taxable event subject to a 1099-C and inclusion as gross income, whereas the same discharge of debt in bankruptcy is not included in gross income or taxable by federal or state revenue authorities.

 

Given that debt relief outside of bankruptcy creates a taxable 1099-C income, it is important to avoid the issuance of 1099 tax income if you still face other debt problems and the possibility of future difficulties or bankruptcy. Experienced bankruptcy counsel at the Law Offices of Neil Crane, LLC, understand that to be effective, unsecured debt forgiveness or short sales needs to leave the consumer free of taxable gains or other forms of debt. In many unfortunate cases, laypersons or inexperienced legal counsel can create partial debt relief that results in taxes that can no longer be discharged, even in the event of a bankruptcy or foreclosure.

This may occur despite the fact that experienced and knowledgeable legal counsel could have avoided the debt and the tax entirely through sound and proven legal advice. Contact us to schedule your free initial consultation with a tax debt relief attorney at our law firm.

Chapter 7 Relief from Tax on Debt Forgiveness

Chapter 7 relieves nearly all forms of debt, including unsecured debt, credit card debt and mortgage deficiencies in full without any negative tax implications upon discharge of the debt in bankruptcy. This provides full tax relief from the discharge of any types of debt under Chapter 7. It assures a full financial future without the burden of resulting tax problems. Chapter 7 debt relief is one of the most coveted forms of relief, even for higher income debtors under the "new" bankruptcy laws. Our experienced attorneys know how to get the full benefit of higher income Chapter 7 relief through thorough and proven working knowledge of all aspects of means testing to qualify for Chapter 7 relief.

Chapter 13 Relief from Taxes on Debt Forgiveness

Chapter 13 allows for the discharge or favorable discounting or repayment of all types of debt without the tax burden created by debt forgiveness or restructuring outside of bankruptcy. Debts reduced or eliminated in Chapter 13 proceedings are not subject to taxes normally imposed on canceled or forgiven debts.

Ordinary unsecured general obligations such as credit card debts or personal loans can be forgiven, eliminated or severely reduced under Chapter 13 reorganizations without the imposition of cancellation of debt tax obligations. Chapter 13 also allows for the reduction, reorganization or elimination of secured obligations through a process known as lien removal or lien stripping. This Chapter 13 procedure allows the filing party to remove judicial liens, statutory liens or consensual mortgages to the extent that they are unsecured or undersecured. This powerful process available only in Chapter 13 can reduce secured obligations to the value of the underlying collateral without the negative tax consequences that would be incurred outside of the Chapter 13 bankruptcy court.

Free Consultation With an Experienced Tax Debt and Bankruptcy Attorney

At the Law Offices of Neil Crane, LLC, we've been using bankruptcy relief under all chapters of the Bankruptcy Code and the BAPCPA amendments to provide tax and debt relief for clients throughout Connecticut. To speak directly with an experienced attorney, call us at 203-230-2233 or toll free at 1-888-249-3027. You can also contact us online for a free initial consultation to discuss your cancellation of debt and how bankruptcy can help.

We have office locations in Hamden, Bridgeport, Ridgefield, Waterbury and Rocky Hill, Connecticut for your convenience.

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We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.