What if I file for bankruptcy protection?
Debts discharged through bankruptcy are not considered taxable income. If you are an individual debtor who files for bankruptcy under chapter 7 or 11 of the Bankruptcy Code, a separate “estate” is created consisting of property that belonged to you before the filing date. This bankruptcy estate is a new taxable entity, completely separate from you as an individual taxpayer. Please note, however, that some tax debts are not dischargeable in a bankruptcy action. For more information, see Publication 908, Bankruptcy Tax Guide.