Tuesday, March 30, 2010

canceled debt is Taxable-Discharged Debt is not

Under the U.S. Bankruptcy Code, if a debt is discharged in a bankruptcy case, it does NOT count as taxable income. Bankruptcy-discharged debt is, therefore, much more powerful than merely canceled debt. While canceled debt may create an income tax liability, discharged debt does not. See What is a 1099c and what do I do about it?