When an individual debtor files for bankruptcy under chapter 7 or 11 of the Bankruptcy Code, the bankruptcy estate is treated as a new taxable entity, separate from the individual taxpayer. The bankruptcy estate in a chapter 7 case is represented by a trustee. The trustee is appointed to administer the estate and liquidate any nonexempt assets. In chapter 11 cases, the debtor often remains in control of the assets as a “debtor-in-possession” and acts as the bankruptcy trustee. However, the bankruptcy court, for cause, may appoint a trustee if such appointment is in the best interests of the creditors and the estate. During the chapter 7 or 11 bankruptcy, the debtor continues to file an individual tax return on Form 1040 or 1040-SR. The bankruptcy trustee files a Form 1041 for the bankruptcy estate. However, when a debtor in a chapter 11 bankruptcy case remains a debtor-in-possession, he or she must file both a Form 1040 or 1040-SR individual return and a Form 1041 estate return for the bankruptcy.
Chapter 7 gets the good treatment, he had no liquid assets, so he's indigent.
Income, deductions, and credits—Form 1040 or 1040-SR. In an individual chapter 7 or 11 bankruptcy case, don't include the income, deductions, and credits that belong to the bankruptcy estate on the debtor's individual income tax return (Form 1040 or 1040-SR). A
lso, don't include as income on the debtor's return the amount of any debt canceled by reason of the bankruptcy discharge. The bankruptcy estate must reduce certain losses, credits, and the basis in property (to the e
https://www.irs.gov/pub/irs-pdf/p908.pdf is the circular