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Law Girl
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Category: Bankruptcy Law
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I am currently in a bankruptcy chapter 13 of a small business.

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I am currently in a bankruptcy chapter 13 of a small business. why are my payments to the trustee not deductible. afterall the trustee is making payments on my behalf.
Submitted: 9 years ago.
Category: Bankruptcy Law
Expert:  Law Girl replied 9 years ago.

Thank you for your question.


Your payments are only deductible to the extent that the payments would have been deductible without the bankruptcy (e.g., local property taxes, auto excise taxes, etc.). If these are expenses or payments you would normally not be able to deduct, their status in the Chapter 13 does not change their deductibility.


Although the Trustee may be receiving your payments and then apportioning them to creditors, only those payments made for tax deductible reasons remain deductible. Sorry.


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Good Luck!

Customer: replied 9 years ago.

I still don't understand, most of the payment is for resale items which should be deductible. Also a lease of equipment which is normally deductible.



Expert:  Law Girl replied 9 years ago.
If paying the creditor for these items is usually deductible, then your payment (through your trustee) should be deductible. Those payments made for tax deductible reasons stay tax deductible. So, if you would usually take a deduction on purchasing resale items, then you may be able to maintain the deduction on the next set of taxes that you file.
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