Bankruptcy Lawyer Bryan W. Stone answers the question: “What are my alternatives to bankruptcy?”
Anyone with a job understands that if you get paid you must pay taxes on what you earn. The same thing goes for those who receive other material benefits, even if it isn’t a paycheck, some tax must be paid for the benefit you received. An example of a situation where tax can be owed despite no cash changing hands is when a loan is forgiven. If a credit card company decided to settle a $25,000 debt for $15,000, you would need to report the difference, $10,000, on your taxes. Not only would you need to report the $10,000, but you’d be required to pay tax on the value of the loan that was forgiven. This leads to a question about the debt discharged in a bankruptcy. Do you have to pay tax on that too?