Procedures of Minneapolis Bankruptcy : Estates Effect on Taxes
Bankruptcy lawsuits start with the filing of a petition with the bankruptcy court. The submitting of the petitions creates a bankruptcy estate.
The Identity of the Bankruptcy Estate
If the debtor is a person who files for bankruptcy under chapter 7 or 11, the bankruptcy estate is treated as a new taxable entity, separate from the individual taxpayer.
Tax Obligations
The tax duties of the individual submitting a bankruptcy petition , the debtor vary depending on the bankruptcy chapter under which the petition was filed.
Generally, when a debt owed to another is canceled the amount canceled or forgiven is thought of as income that may be taxed to the individual owing the debt. If a debt is canceled under a bankruptcy proceeding, the amount canceled isn't income. However, the canceled debt reduces the amount of other tax benefits the debtor may otherwise be entitled to.
If a husband and wife report a joint bankruptcy petition and their bankruptcy estates are jointly administered, their estates will have to be treated as two separate entities for tax purposes. Two separate tax returns will have to be filed (if they separately meet the filing requirements).
Exempt Assets in Administration of the Estate
The estate in a chapter 7 case is represented by a trustee. The trustee is appointed under the Bankruptcy Code to administer the estate and liquidate any nonexempt assets of the estate. Exempt assets aren't taken by the bankruptcy trustee, are not liquidated, and ownership of exempt assets is retained by the debtor.
Some examples of exempt assets include:
Other exemptions may rely on whether or not a person is permitted to make use of the Minnesota exemption list, or whether or not a person isn't authorized to make use of the Minnesota exemption list. The Minnesota exemption list differs from the federal exemption list in many ways.
One major difference between the Minnesota exemption list and the federal exemption list is that the Minnesota exemption list permits a debtor to keep a greater amount of equity in a home. However, the federal exemption list comprises a catch-all provision allowing a debtor to retain any assets not otherwise listed as much as $1,150, plus other assets as much as $10,825 if the entire home exemption was not used.
Generally speaking, an individual who is authorized to choose between the federal exemption list and the Minnesota exemption list (no one is allowed to use both) it will likely be at an advantage choosing the Minnesota list if he or she has a considerable amount of equity in his or her home. Otherwise, a debtor is typically better protected by using the federal exemption list. These are large generalizations however, and it is very important to conduct a cautious analysis of all assets and the exemption lists prior to making this determination.
Links:
The Identity of the Bankruptcy Estate
If the debtor is a person who files for bankruptcy under chapter 7 or 11, the bankruptcy estate is treated as a new taxable entity, separate from the individual taxpayer.
Tax Obligations
The tax duties of the individual submitting a bankruptcy petition , the debtor vary depending on the bankruptcy chapter under which the petition was filed.
Generally, when a debt owed to another is canceled the amount canceled or forgiven is thought of as income that may be taxed to the individual owing the debt. If a debt is canceled under a bankruptcy proceeding, the amount canceled isn't income. However, the canceled debt reduces the amount of other tax benefits the debtor may otherwise be entitled to.
If a husband and wife report a joint bankruptcy petition and their bankruptcy estates are jointly administered, their estates will have to be treated as two separate entities for tax purposes. Two separate tax returns will have to be filed (if they separately meet the filing requirements).
Exempt Assets in Administration of the Estate
The estate in a chapter 7 case is represented by a trustee. The trustee is appointed under the Bankruptcy Code to administer the estate and liquidate any nonexempt assets of the estate. Exempt assets aren't taken by the bankruptcy trustee, are not liquidated, and ownership of exempt assets is retained by the debtor.
Some examples of exempt assets include:
- equity in a home, up to a point;
- equity in a car, up to a point;
- receipt of some benefit payments;
- some tools of the trade or business of the debtor.
Other exemptions may rely on whether or not a person is permitted to make use of the Minnesota exemption list, or whether or not a person isn't authorized to make use of the Minnesota exemption list. The Minnesota exemption list differs from the federal exemption list in many ways.
One major difference between the Minnesota exemption list and the federal exemption list is that the Minnesota exemption list permits a debtor to keep a greater amount of equity in a home. However, the federal exemption list comprises a catch-all provision allowing a debtor to retain any assets not otherwise listed as much as $1,150, plus other assets as much as $10,825 if the entire home exemption was not used.
Generally speaking, an individual who is authorized to choose between the federal exemption list and the Minnesota exemption list (no one is allowed to use both) it will likely be at an advantage choosing the Minnesota list if he or she has a considerable amount of equity in his or her home. Otherwise, a debtor is typically better protected by using the federal exemption list. These are large generalizations however, and it is very important to conduct a cautious analysis of all assets and the exemption lists prior to making this determination.
Links:
- Minneapolis Bankruptcy Processes and Procedures: The Creation of Bankruptcy and the Pivotal Role of the Trustee
- Minneapolis Bankruptcy Filings: What are the Areas of Caution You Should Be Aware of Before Filing Bankruptcy?
- Minneapolis Bankruptcy Discharge: When is it Automatic and When May a Creditor Object?
- Minneapolis Bankruptcy Discharge: What is a Discharge in Bankruptcy?
