Bankruptcy - Declaring Bankruptcy
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Per IRS Publication 908 Bankruptcy Tax Guide, on page 2:

Bankruptcy proceedings begin with the filing of either a voluntary petition in the United States Bankruptcy Court, or in certain cases an involuntary petition filed by creditors. This filing creates the bankruptcy estate.

  • The bankruptcy estate generally consists of all of the assets the individual or entity owns on the date the bankruptcy petition was filed.
  • The bankruptcy estate is treated as a separate taxable entity for individuals filing bankruptcy petitions under chapter 7 or 11 of the Bankruptcy Code, discussed later.
  • The tax obligations of taxable bankruptcy estates are discussed later under Individuals in Chapter 7 or 11.

Generally, when a debt owed to another person or entity is canceled, the amount canceled or forgiven is considered income that is taxed to the person owing the debt. If a debt is canceled under a bankruptcy proceeding, the amount canceled isn't income. However, the canceled debt reduces other tax benefits to which the debtor would otherwise be entitled. See Debt Cancellation, later.

Note that any link in the information above is updated each year automatically and will take you to the most recent version of the document at the time it is accessed.