Individuals in Chapter 12 or 13 Bankruptcy & Tax Law Information

A separate estate, for tax purposes, is not created for an individual who files a petition under Chapter 12 or 13 of the Bankruptcy Code. You, the individual, should continue to file the same federal income tax return that was filed prior to the bankruptcy petition.

On your return, report all income received during the entire year and deduct all allowable expenses. Do not include any debt canceled (because of bankruptcy) in income on your return. However, you must reduce (to the extent that you have) certain losses, credits or basis in property by the amount of canceled debt. See Debt Cancellation, later.

For information about determining the amount of tax due and paying tax, see Tax Procedures, later.

Note: Interest on trust accounts in Chapter 13 proceedings. If you are an individual debtor in a chapter 13 wage earner’s plan, do not include as income on your return interest earned on amounts held in trust accounts while awaiting distribution to your creditors. This interest is not available either to you or to your creditors. It is available only to the trustees, and is taxable to the trustee as his or her individual income.

Last reviewed October 2024