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Ellen
Ellen, Attorney
Category: Bankruptcy Law
Satisfied Customers: 36714
Experience:  Bankruptcy Lawyer. Experienced.
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If I file bankruptcy,does that eliminate the taxes that accompany

Resolved Question:

If I file bankruptcy,does that eliminate the taxes that accompany a charge off ?. How can such taxes be avoided? If you file befoe the creditor does the charge off,does that avoid the tax problem?? I am 5 months behind on credit cards. Thank you.
Submitted: 6 years ago.
Category: Bankruptcy Law
Expert:  Ellen replied 6 years ago.
Hello,

Thank you for your question. I am happy to assist you.

I am a lawyer with 25 years experience. While I am not your lawyer and do not represent you, I will endeavor to provide you with legal information through this open and nonconfidential forum.

You are referring to relief of indebtedness income. Bankruptcy is an exception to the right to the recognition of such income.

Debts discharged through bankruptcy are not considered taxable income.
Customer: replied 6 years ago.
If the creditor sells the debt to a collection agency - for example a $5,000 debt is sold for $1,000 and the creditor charges off $4000, they are saying that the IRS requires them to file a 1099c about the charge off. If I eventually file chapter 7 including the debt that went to the collection agency, how will the IRS view that ??
Who technically owns the debt that goes to a collection agency??
Thank you so much
Expert:  Ellen replied 6 years ago.
Hello,

If I eventually file chapter 7 including the debt that went to the collection agency, how will the IRS view that ??
It will not be considered a taxable event. You would not pay taxes on the $4000

Who technically owns the debt that goes to a collection agency??
Some collection agencies purchase the debt and other collection agencies work for the original creditor
Ellen and other Bankruptcy Law Specialists are ready to help you