Can You File Bankruptcy On Taxes Owed - There are many reasons to file your tax return. If you're thinking about bankruptcy, the first thing you'll need to do is file your tax return.
A few years ago I had a client who had to file for bankruptcy and was deeply in debt to the government for unpaid income taxes.
Can You File Bankruptcy On Taxes Owed
The IRS and state IRS came after him, threatening wage garnishment. He was scared because his income was barely enough to survive every month.
Learn About Taxes When You File For Bankruptcy
His problems were compounded because he had never filed a tax return in all those years. As a result, the IRS assessed all tax liabilities based on their calculations, not yours.
The Bankruptcy Statement of Financial Affairs, one of the documents you must complete to file for bankruptcy, asks about your income for the past two years. Of course, that means getting your hands on that information, and tax returns are usually the quickest place to look. But, of course, you can get that information without a full tax return. Still, gathering the data is more of a challenge.
In addition, you are required by law to list all your assets, including any tax refunds you owe. If you have yet to file your return, you won't know if the government owes you money (many of my clients thought they owed money for taxes, only to find out they were wrong). Also, if you don't list the refund, you'll lose the right to claim it after your bankruptcy case is over.
However, the issue of unfiled taxes in bankruptcy will directly affect you if you file for Chapter 13.
What Debt Can't Be Discharged In Filing For Bankruptcy?
According to the US Bankruptcy Code (11 USC 1308) you must file taxes for all tax periods that end during the 4 years that end on the date you file your bankruptcy case, and you have until the day before the meeting of creditors to do so.
Depending on where you file for bankruptcy, local rules may also require you to provide copies of tax returns to the trustee assigned to your case. Without those statements filed, the trustee may have a bone to pick with you and eventually go to court.
So if you need to catch up on your tax returns and get everything in order, you will have serious trouble filing for Chapter 13 bankruptcy.
If you're filing for Chapter 7 bankruptcy, you may be in trouble if you haven't filed your tax returns for the past year.
Are Tax Liens Dischargeable In Bankruptcy?
According to the US Bankruptcy Code (11 USC 521(e)) you have up to 7 days before the meeting of creditors to provide the bankruptcy trustee with a copy of your most recent tax return. Assume that you have been diligent with your obligations. In that case, this should be easy, but if you submit a 5 year return and still show current income, then under 11 USC 521(f) it's a different story.
You may need to file copies of your overdue tax returns with the court; it may also be necessary to present them in court for a while.
When you file for bankruptcy, all government debts, including unpaid taxes, must be included in the bankruptcy filing. If you file Chapter 7 bankruptcy and do not file tax returns, those tax debts will not be waived. In Chapter 13 bankruptcy, you must still pay the full amount of your tax debt through your payment plan. This means that your tax debts will continue to accrue interest and penalties, and you will still be responsible for paying them even after your bankruptcy is finalized.
That's why it's essential to file your tax returns before filing for bankruptcy. By filing your tax return early, you can determine the amount and nature of your tax debt, accurately list your debts in your bankruptcy filing, and avoid disputes with the tax authorities. Your bankruptcy attorney can also work with you to explore options for resolving your tax debt, such as negotiating a payment plan or a proposed compromise.
How To File Bankruptcy On Your Taxes
On the other hand, if you don't file your tax returns before you file for bankruptcy, your attorney won't be able to handle those potential liabilities as effectively as possible. This can lead to complications in the bankruptcy process and your tax debts may not be handled properly.
My client filed 13 years of tax returns before we filed his bankruptcy case. Fortunately, he didn't owe money for many of those years and has had a nice recovery in the last couple of years. That refund offset much of what the IRS said he owed, and he was able to manage the remaining balance with a modest payment plan.
If you didn't file your return, we wouldn't have been able to list the refunds, which would cut off your right to receive the money. As a result, your total tax liability would have been higher and you would not have been able to pay it given your financial situation. That would have cost him thousands of dollars in additional tax liabilities and financial headaches that would last for years after his bankruptcy case was finalized.
The trustee could have asked the bankruptcy court to keep his case out of court for not filing his tax returns, which would have jeopardized his case. Even if we can win the argument against the administrator, it would cost my client more money in legal fees, not to mention the fear of litigation in court.
How Bankruptcies Work
In the end, filing a complaint was the best solution. However, suppose you are in a similar position. In that case, it's a good idea to follow my client's lead: file your returns before walking through the bankruptcy court doors.
Since becoming an attorney in 1995, I have helped people with student loan, consumer debt, foreclosures, debt collection abuse, and credit reporting issues. Instead of limiting my knowledge, I make everything I can freely available on this site and on my other social channels.
I've helped thousands of federal and private student loan borrowers lower their payments, get settlements, get out of default, and qualify for loan forgiveness programs. My practice includes defending student loan lawsuits brought by companies such as Navient and the National Collegiate Student Loan Trust. Additionally, I have represented thousands of individuals and families in Chapter 7 and Chapter 13 bankruptcy cases. I currently focus my legal practice exclusively on student loan matters.
I played a key role in developing the Student Loan Law Workshop, where I helped train over 350 lawyers to help people with student loan problems. I have spoken at events held by the National Association of Consumer Bankruptcy Attorneys, the National Association of Consumer Advocates and bar associations across the country. National news media regularly turn to me for my expertise on student loans and consumer debt. Technically, you don't have to have your tax returns filed before you file for bankruptcy. But depending on whether or not you file a Chapter 7 or Chapter 13 bankruptcy in Colorado, you may have to file tax returns up to the last four years shortly after your bankruptcy case is filed.
What To Do When You Receive An Irs Audit Letter
In a Chapter 7 bankruptcy there is no requirement that you have your unfiled tax return before or after your bankruptcy is filed. If one of your unfiled tax returns results in a balance owed to the IRS, it won't go away after you file for bankruptcy. It is possible to suppress the tax debt in case of bankruptcy, but one of the requirements for this is that the returns have to be filed
However, your Chapter 7 bankruptcy trustee may require you to file unfiled tax returns before completing his administration of your case. The reason is simple: In Colorado, your tax refunds may not be protected in a bankruptcy. It can force you to transfer it so you can distribute it to your creditors. Oh, and you get to keep a percentage of your sales, too. If you don't file your returns or the returns you're entitled to, you'll ask the court to withdraw the pardon. This means you are without the protection of the bankruptcy court and still owe all the debts that led you to file for bankruptcy in the first place.
In a Chapter 13 bankruptcy, Section 1308 of the Bankruptcy Code requires: ``not later than the day before the date on which the meeting of creditors is first held under section 341(a), if the debtor is obliged to In case of submitting a tax return in accordance with the applicable non-bankruptcy legislation, the debtor will submit to the competent tax authorities all tax returns for all tax periods that end during the four-year period that ends on the date of submission of the application.
Therefore, the last four years of returns must be filed before the court can approve your Chapter 13 repayment plan. like you
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