Many people who need to file bankruptcy have other financial issues swirling around them as well, and taxes seem to loom the largest. Some have outstanding tax debts, whereas others simply haven’t filed tax returns in years.
When filing bankruptcy, unfiled taxes could wreck your case. Here’s why.
Income Disclosures In Your Bankruptcy Papers
As part of the Statement of Financial Affairs you’re going to need to account for your income over the past two years. That means you’re going to need to get your hands on that information, and tax returns are typically the fastest place to look.
A lack of a completed return will surely make the task more difficult, but that’s easily fixable. You can rifle through your end-of-year income statements, bank account records, and other financial documents while you’re putting together the documents needed for filing bankruptcy.
It’s far more time consuming than looking at the tax returns, but maybe you like to make life more complex.
Income Tax Returns In Chapter 13 Bankruptcy
The problem of unfiled taxes in terms of filing bankruptcy, however, hits you square int he face if you’re filing Chapter 13.
Under the U.S. Bankruptcy Code (11 USC 1308) you’re required to have tax returns filed for all taxable periods ending during the 4-year period ending on the date of the filing of your bankruptcy case – and you’ve got until the day before your meeting of creditors to get it done.
Depending on where you file for bankruptcy, your local rules may also require that you provide copies of tax returns to the trustee assigned to your case. Without those filed returns, the trustee may have a bone to pick with you – and that will ultimately go to the judge.
So if you’re behind the times in terms of filing your taxes, and don’t have everything lined up you’re going to run into some severe problems when filing bankruptcy under Chapter 13.
Income Tax Returns In Chapter 7 Bankruptcy
If you’re filing Chapter 7 bankruptcy then you may have problems if you haven’t filed your tax return for the past year.
Under the U.S. Bankruptcy Code (11 USC 521(e)) you’ve got until 7 days prior to the meeting of creditors to provide the case trustee with a copy of your most recent tax return. If you’ve been diligent about your obligations this should be a snap, but if you’re sending along a 5 year old return yet showing current income then under 11 USC 521(f) it’s a different story.
You may be required to file with the court copies of your tax returns that are past due; you may also be required to file them with the court on a going-forward basis for some period of time.
All in all, those unfiled taxes are going to cause no small amount of headache for you.
Unfiled Income Tax Returns Could Mean No Discharge
On a larger scale, when you don’t file your tax returns prior to filing bankruptcy there’s going to be an issue with respect to how those debts are handled in the case. Not only won’t unfiled tax debts be discharged in a Chapter 7, they won’t be paid out in a Chapter 13.
It’s a better idea to file your returns before walking into bankruptcy court so that your lawyer can help you deal with those potential obligations now rather than having them loom larger later.
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