Credit card debt can really weigh a strain on your life, your marriage, and your health. Filing for protection under Chapter 7 or Chapter 13 of the Bankruptcy Code can help get your life back together. Sometimes a debt settlement plan is appropriate rather than a bankruptcy. However, there is the potential for income tax liability if a settlement is completed.
An exception to the gross income rule in the Internal Revenue Code is discharge of indebtedness under the Bankruptcy Code. So, when you get a discharge from your debts under the Bankruptcy Code then there is no income tax liability. If you talk to an experienced bankruptcy attorney then you can get counseling on how to rehabilitate your credit score after the bankruptcy.