Tax season is nearly over. However, many individuals struggling with overwhelming debt are already thinking ahead to next tax season and to the next tax season after that. It is difficult to think about little else besides money when your debts are mounting. That mental stress, which often takes a physical toll, is simply one of many reasons why it is important to explore legitimate debt relief options with the help of an experienced attorney when your debts threaten to spiral out of control.
“But wait,” you may be saying. “Won’t filing for bankruptcy or utilizing another debt relief option result in significant tax-related liabilities?” That is an excellent question. It is always important to take tax considerations and other consequences of debt relief under advisement before determining which options you will ultimately reject or embrace.
The short answer to this question is that if you choose to file for bankruptcy, you may or may not be affected by certain tax-related consequences. For example, in the rare case that individuals are granted the ability to discharge their federal student loan debts, they may have that discharge treated as income on their next tax return. However, not all discharged and reorganized debts result in such significant tax consequences.
At the end of the day, it is important to discuss your unique financial situation with an attorney. An experienced bankruptcy attorney is in the best position to explain to you all of the potential benefits and negative consequences which may result from filing for bankruptcy or from utilizing some other form of debt relief.
Source: The New York Times, "Disabled Borrowers Trade Loan Debt for a Tax Bill From the I.R.S.," Tara Siegel Bernard, March 27, 2014