Should I File My Tax Returns Before Filing Bankruptcy?
If bankruptcy is on your mind, you already have a lot on your plate. Add tax season to the mix, and that plate is overflowing! But here’s the thing—filing tax returns before filing bankruptcy is usually beneficial. While every situation is different, here are some key factors to consider:
Tax Returns Are Often A Requirement
Chapter 7 Bankruptcy
When filing for Chapter 7 bankruptcy, taxes play a big role in how things unfold. While you don’t need to be completely up to date on your tax filings, you must provide your most recent return to your trustee. If your last filed return is outdated, expect some questions because they’ll want to know why. And if you haven’t filed taxes for certain years, those debts won’t just disappear in bankruptcy. Unfiled tax debts stick with you, meaning you’ll still owe them even after your case is closed. Another thing to keep in mind—if you’re expecting a tax refund, it might not be yours to keep. Refunds in a Chapter 7 case often become part of the bankruptcy estate, meaning the trustee can use them to pay creditors, and it’s best to plan ahead for that.
Chapter 13 Bankruptcy
It’s crucial to stay on top of taxes during Chapter 13 bankruptcy because before the court signs off on your repayment plan, you must provide your trustee with tax returns for the past 4 years. If those aren’t submitted, your case could be delayed/dismissed. But it doesn’t stop there—staying current on taxes is just as important. Since Chapter 13 involves a repayment plan that lasts three to five years, you’ll need to keep filing your taxes on time throughout the process or risk having the case dismissed.
Can Tax Debt Be Discharged in Bankruptcy?
Taxes and bankruptcy can be a tricky combination. Some tax debts are dischargeable, but others remain your responsibility. At any rate, even if your tax debt doesn’t qualify for discharge, filing your tax return first will help determine if you meet the criteria.
How Filing Tax Returns Before Filing Bankruptcy Could Help
Filing your tax return before bankruptcy can provide a clearer picture of your financial situation. In a Chapter 7 case, refunds can help to pay creditors. Further, if you owe taxes, filing your return first helps clarify that debt before bankruptcy. If the tax debt isn’t dischargeable, you’ll address it in your repayment plan or explore other options. In some cases, waiting to file could be better, but this is generally rare.
Individualized Guidance from The Law Offices of Ronald I. Chorches
Handling tax returns properly is an integral part of the bankruptcy process. Unfortunately, tax and bankruptcy laws can be extremely complex, and there’s no one-size-fits-all solution. However, you can reach out to us here at The Law Offices of Ronald I. Chorches so that we can help you take the best path for your situation. We offer free bankruptcy consultations in Hartford, Wethersfield, Waterbury, and New Haven, Connecticut, so you don’t have to navigate this alone. We understand that financial struggles can feel overwhelming, but you have options, and we’re here to help you find them.
