Does Filing Bankruptcy Change How I Should File My Taxes?

Tax season can feel stressful enough on its own. When you add a bankruptcy on top of it, you may wonder if everything changes. The good news is that for most people, filing your taxes after bankruptcy looks a lot like it did before.

This post explains how bankruptcy affects your tax return, what forms to watch for, and what to do if you get a surprise tax form in the mail.

The Short Answer

For most people, filing bankruptcy does not change how you file your yearly income taxes. You still file your federal and state returns the same way you always have.

There are a few special tax forms you should know about. You may still get a Form 1098 from your mortgage company. You might also get a Form 1099-C for a debt that was wiped out, or "discharged," in your bankruptcy. Don't panic if that happens. In most cases, debt erased in bankruptcy does not count as income you owe taxes on.

A bankruptcy attorney or tax preparer can help you handle these forms correctly.

Do You Still File Taxes the Same Way After Bankruptcy?

Yes. In most cases, you file your personal income tax return just like you did before.

Whether you filed Chapter 7 bankruptcy or Chapter 13 bankruptcy, you still report your income, claim your deductions, and file by the normal deadline.

A few things are worth knowing:

• You must keep filing your tax returns on time. This is very important in Chapter 13.
• You may need to give a copy of your tax returns to the bankruptcy trustee.
• In some Chapter 13 cases, you may be asked to turn over part of a tax refund to help pay your creditors.

Your attorney will tell you what your specific plan requires. Every case is a little different.

Will I Still Get a Form 1098 for My Mortgage?

A Form 1098 shows how much mortgage interest you paid during the year. Many homeowners use it to claim a deduction.

If you are paying your mortgage through a Chapter 13 plan, you may wonder if you will still get this form. The answer is usually yes.

Your mortgage company normally sends the Form 1098 right to you. Sometimes it may go to your attorney by mistake. If you don't receive yours, contact your mortgage company or ask your attorney's office to check.

You can still claim the mortgage interest deduction if you qualify, just like before. Bankruptcy does not take that away.

What If I Get a Form 1099-C After Bankruptcy?

This is one of the most common tax questions people ask after bankruptcy.

A Form 1099-C is called "Cancellation of Debt." A lender sends it when they cancel or forgive a debt you owed. Normally, the IRS treats forgiven debt as income, which means you could owe taxes on it.

But here is the important part. Debt that was discharged in bankruptcy is usually not counted as taxable income. This is true even if a creditor sends you a 1099-C.

So if you get a 1099-C for a debt that was included and wiped out in your bankruptcy, you usually will not owe taxes on it. You just need to report it the right way.

How to Handle a 1099-C With Form 982

To tell the IRS that the canceled debt was part of your bankruptcy, you usually file IRS Form 982 along with your tax return.

Form 982 lets you check a box showing the debt was discharged in a bankruptcy case. This keeps the canceled debt from being added to your income.

Here is a simple example:

Maria owed $8,000 on an old credit card. That debt was discharged in her Chapter 7 bankruptcy. The next year, the credit card company mailed her a 1099-C for $8,000. Maria did not owe taxes on that amount. She filed Form 982 with her return and noted the debt was discharged in bankruptcy.

Because tax rules can get tricky, it is smart to work with a tax preparer or ask your attorney's office for guidance.

How This Works in North Carolina

North Carolina follows the same federal rules for how bankruptcy affects your income taxes. You file your federal and state returns the same way you would in any other state.

One thing North Carolina filers should know is how tax debt is treated in bankruptcy. North Carolina is what's called an "opt-out" state. That means you must use North Carolina's exemption laws to protect your property, not the federal exemption list.

Tax debt deserves special attention. In North Carolina, an IRS tax debt can be especially powerful. Normally, property a married couple owns together as "tenants by the entirety" is protected from a creditor that only one spouse owes. But the IRS is different. Under a 2024 federal appeals court case, Morgan v. Bruton, a federal tax debt owed by even one spouse can reach jointly owned real estate. So if you owe the IRS, that protection may not apply to your home.

This is one more reason to talk with an attorney before you file if you have tax debt.

Can Bankruptcy Erase Tax Debt?

Sometimes, but not always.

Most income tax debt can only be discharged if it meets strict rules. The general requirements include:

• The taxes are income taxes, not payroll or fraud penalties.
• The tax return was due at least three years ago.
• You actually filed the tax return at least two years ago.
• The IRS assessed the tax at least 240 days ago.
• You did not file a fraudulent return or try to evade the tax.

These rules come from the U.S. Bankruptcy Code (see 11 U.S.C. § 523). Newer tax debt usually cannot be erased.

Because the timing rules are detailed, a bankruptcy attorney can review your tax records and tell you whether your tax debt may qualify.

Chapter 7 vs. Chapter 13 and Your Taxes

Both chapters let you keep filing your taxes as normal. But they handle tax debt and refunds a little differently.

Not sure which chapter fits your situation? Our guide on Chapter 7 vs. Chapter 13 breaks it down in plain English.

What Should You Do Next?

Here are a few calm, simple steps:

1. Keep filing your taxes on time. This matters in every bankruptcy, especially Chapter 13.
2. Save all tax forms you receive, including any 1098 or 1099-C.
3. Don't panic over a 1099-C for a discharged debt. It usually does not mean you owe taxes.
4. Ask about Form 982 if you get a 1099-C for a debt included in your bankruptcy.
5. Talk to a professional. A tax preparer or your attorney's office can help you file correctly.

Taking these steps can save you stress and help you avoid mistakes.

Get Help From Duncan Law

If you are dealing with debt and worried about taxes in North Carolina, you do not have to figure it out alone. Duncan Law can help you understand your options and decide whether Chapter 7 or Chapter 13 bankruptcy makes sense for you.

You can schedule your free consultation online, or call the office closest to you:

• Greensboro: (336) 856-1234
• Charlotte: (704) 563-1224
• Winston-Salem: (336) 245-4294
• Asheville: (828) 348-5252
• High Point: (336) 294-5800
• Salisbury: (704) 297-4000

Duncan Law proudly serves clients throughout North Carolina, including Greensboro, Charlotte, Winston-Salem, Asheville, High Point, Salisbury, and nearby communities.