Does Bankruptcy affect my income tax?
No, bankruptcy is a tax — is a non-taxable event. And that’s real important to understand, because a lot of people try to dig themselves out of the hole by settling with their credit card companies. Let’s say you owe American Express $10,000. You agree to settle it for $5,000. They’re going to send you a 1099 for the other $5,000 they forgave, and that’s just like they gave you a check for $5,000. And then suddenly instead of American Express, you have the IRS breathing down your neck. With bankruptcy, if you wipe out the whole $10,000, that is a non-taxable event.