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Key takeaways. Loans, medical debt and credit card debt are generally all able to be discharged through bankruptcy. Tax debt, alimony, spousal or child support and student loans are all typically ...
Taxpayers in the United States may have tax consequences when debt is cancelled. This is commonly known as cancellation-of-debt (COD) income.According to the Internal Revenue Code, the discharge of indebtedness must be included in a taxpayer's gross income. [1]
Once a bankruptcy discharge is granted, the debtor is no longer legally required to pay back the discharged debts, and creditors are prohibited from attempting to collect on those debts. This means that the debtor can have a fresh financial start and move forward without the burden of overwhelming debt. [2]
The $80,000 portion of the debt is treated as a secured claim. Assuming a discharge is granted and none of the $20,000 deficiency is paid (e.g., due to insufficiency of funds), the $20,000 deficiency—the debtor's personal liability—is discharged (assuming the debt is not non-dischargeable under another Bankruptcy Code provision).
The goal of declaring bankruptcy varies, but usually involves the dissolution of burdensome unsecured debt (as in Chapter 7 bankruptcy) or debt restructuring or repayment (as in Chapter 11 or ...
A Chapter 7 is generally best for those with minimal disposable income, few assets and a significant amount of dischargeable debt. Chapter 13 bankruptcy (debt restructuring): A Chapter 13 ...
Some taxes are not discharged even though the debtor is generally discharged from debt. Many individuals in financial distress own only exempt property (e.g., clothes, household goods, an older car, or the tools of their trade or profession) and do not have to surrender any property to the trustee. [49]
Key takeaways. Chapter 7 bankruptcy involves discharging debt through liquidation. Chapter 13 bankruptcy focuses on reorganizing debt through a repayment plan that typically lasts three to five years.