Most people only decide to go bankrupt as their last resort. A lot of people try to reach some type of debt settlement rather than going the bankruptcy route. This can have some tax implications to it that you really need to consider before making a decision on debt settlement. You also may be in a position where you had a debt and the debt was written off after a few years. You now believe you are free and clear financially regarding this debt, but you may soon find out that it has some tax implications to it.
If the creditor who has written off the debt reports this to the IRS, this government department wants to be able to collect the tax that is owed on this money. They can’t collect this from the creditor because the creditor didn’t receive the money. They can take steps to collect it from you as they consider it as gained income on your part, which is therefore taxable.
If this same debt had been handled in a bankruptcy then the rules are different. In this case you do not have to declare the non payment of the debt with the IRS.
There are so many different financial areas to consider when dealing with debt, that it is important to speak with a qualified Louisville bankruptcy attorney to determine what your options are and what is best for your particular financial circumstance. It is difficult to keep up all the various laws concerning debt and creditors.