If you are thinking about filing a chapter 13 bankruptcy here in southern New Jersey I am sure you have been struggling to stay on your budget in order to come up with enough money to pay into a plan. But 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 those plan payments. You just have to look!
If you are like most people thinking about chapter 13, you are probably doing so as a way to get caught up on your mortgage payments. Well, those past due 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.
The good news is, 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, you can call to get it.
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. This can be done by getting a copy of the bank’s proof of claim, printing off the trustee’s disbursement records, and saving 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.
Talk to Your Accountant
You may be entitled to many other deductions as well, but only your accountant knows for sure. After you file, you can 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.
If you live in southern New Jersey and are thinking about filing bankruptcy, please call my office at 856-432-4113 or contact me through this site to schedule an appointment to come in and discuss your situation.
If you are looking for more information, download my book, Top Questions People Ask About Filing Bankruptcy in New Jersey.