Are Debts Discharged by Bankruptcy Taxable?
When creditors tell debtors they don't have to repay the money owed, the IRS usually requires debtors to pay taxes on the cancelled amounts. It's natural for people filing bankruptcy to wonder if the same applies to debts discharged by the bankruptcy court. Here's what you need to know about this issue to help you plan accordingly. Discharged Debts Are Non-Taxable The IRS considers cancelled debt to be income since the removal of the obligation to repay the money is essentially the same as the creditor sending you a check in the mail.