Discharged Debts and Taxes

Individuals facing mounting debts may have several options for reducing the amounts that they owe. Two of the most popular options are bankruptcy and debt negotiation. Each method has certain advantages and disadvantages the debtors may consider. However, one factor that individuals frequently fail to consider adequately is how pursuit of either of these methods of debt resolution can impact their tax liabilities.

Depending on how an individual discharges his or her debts, he or she may be responsible for paying taxes associated with these actions. If you are struggling financially and cannot keep pace with your current obligations, it may be time to seek help. Contact the Arizona bankruptcy lawyers of the Harmon Law Office, LLC, at 480-829-0494 today.

Which Discharged Debts are Taxable?

Usually, individuals who have their debts forgiven through bankruptcy are not subjected to taxation on these discharged debts. Individuals who have their debts discharged through debt negotiation, though, are usually required to file the discharged debts as personal income.

The reason for this is that debts discharged through bankruptcy are actually discharged by the government while debts discharged through debt negotiation are discharged by lenders, businesses, and other corporations.

Depending on your financial situation and the amount you owe, the tax burden for debt negotiation may be reasonable. In other cases, though, you may want to pursue bankruptcy instead because simply having to pay the taxes for the debt amount which was discharged could be impossible.

Contact Us

Deciding between bankruptcy and debt negotiation may come down to taxes. If you are struggling to stay financially afloat because of large debts, contact the Arizona bankruptcy attorneys of the Harmon Law Office, LLC, at 480-829-0494 today to learn more about your options.