West Virginia Bankruptcy Courts (WV)

After the West Virginia Bankruptcy Court acts, are discharges taxable by the IRS?

The tax consequences of discharge are highly misunderstood and cause many people needless grief. If a creditor charges-off a debt before filing, the IRS may impute income if the company reports the loss and deducts the loss as an expense. Most companies in fact do consider charged-off debt as an expense item, and the IRS does impute a like a mount to taxpayers as income because of the apparent windfall. But, the exception to this rule occurs when filing. After the West Virginia Bankruptcy Court discharges debt, the benefits of discharge are not taxable, regardless of how creditors report losses to the IRS.

Finding the West Virginia Bankruptcy Court Districts:

West Virginia Northern Bankruptcy Court Divisions: Clarksburg and Wheeling.

West Virginia Southern Bankruptcy Court Divisions: Beckley, Bluefield, Charleston, Huntington, and Parkersburg.

In practice, a few days variation in the filing date can create large swings in dischargeable debts and tax liability. Wise debtors file before creditors claim charge-off, because of the imputed income rule. The date of charge can be difficult to ascertain however, because of the day of entry upon the ledgers of the creditors is used to determine the actual date of charge off. Losses may not be reported for one year, and many debtors believe that vindictive creditors backdate ledger entries to insure debtors will be forced to pay imputed income on debts discharged through the courts.