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If you are in a chapter 13 bankruptcy in New Jersey, I am sure you have been struggling to stay on your budget and make your payments to the trustee every month. It’s a tough job, and it can go on for up to five years. Wouldn’t it be great if you could get some money back on your taxes to “ease the squeeze” a bit? Well, there might be some tax deductions hiding in your plan payments. You just have to look!
If you are like most people in chapter 13, you are trying to get caught up on your mortgage payments. Well, those payments may contain deductible interest if you itemize deductions! The only problem is that banks usually do not file 1099s with the IRS on mortgage interest paid through a plan.
All Chapter 13 trustees have information available on line for debtors whose cases they are administering. Usually, the instructions for how to access the information about your case is provided when you meet with him/her initially. If not, call to get it. The standing trustee in my area of New Jersey, Isabel Balboa, can be reached at 856-663-5002.
Since banks don’t seem to acknowledge Chapter 13 payments as interest, you’re on your own to back up your claim for a tax deduction. Get a copy of the bank’s proof of claim, print off the trustee’s disbursement records, and save them along with a copy of your plan with your supporting tax documents. You might have to go to a bit of work to calculate the interest from the principal, but it could be worth it.
If you are self employed, on a cash accounting basis, and are paying back business debts in your plan, be sure to include these as well. If you are not paying back 100% of your debt, you will not get 100% of the deduction you would have received if you had not filed bankruptcy, but it can certainly make a difference. Again, you need to document everything yourself, so get the proofs of claim along with the trustee’s disbursement records.
You may be entitled to many other deductions as well, but only your accountant knows for sure. Bring him/her your bankruptcy petition and the trustee’s disbursement records for that tax year. A thorough review of everything may yield some significant deductions that may make the difference between paying and being paid (or an even bigger refund). It is certainly worth the effort.
Looking for more information about bankruptcy? Get the answers to the most frequently asked questions by downloading my free book, Top Questions People Ask About Filing Bankruptcy in New Jersey. It will give you the answers you need all in one place. Then call me at 888-857-8418 or contact me through this site for an appointment for a free consultation to discuss your case.