What You Need To Know About Filing Taxes When You File For Bankruptcy In The Same Year
If you have decided to
file for bankruptcy, you may be wondering what sort of impact this will have on your taxes when you eventually file later in the year. You may be under the impression that your tax debts can’t be discharged in bankruptcy. This would be incorrect, as long as you can meet certain parameters.
When you file for bankruptcy, make sure you file for the correct chapter that is best applicable to your particular circumstances. If you file Chapter 11 or
Chapter 13 bankruptcy, there are some circumstances where you can have your federal, state, and local taxes discharged. If you file for
Chapter 7 bankruptcy, then your income taxes are the only type of debt that can be discharged.
Tax Filing Criteria
Whether or not you decide to file for bankruptcy may depend on if you have filed your taxes yet. You cannot file for Chapter 13 bankruptcy if your tax returns aren’t current. However, you can file for Chapter 7 bankruptcy if your tax returns aren’t current. Your last filed return will be required in order to file for Chapter 7 bankruptcy, but it doesn’t have to be your return for that current year.
Remember that when you are filing for bankruptcy, you are responsible for providing accurate financial information to the IRS that will need to be verified. A bankruptcy trustee will oversee your case and will review your tax returns as part of the bankruptcy process.
If you haven’t filed your tax returns for the current year yet and need to file for bankruptcy, make sure you file for Chapter 7 bankruptcy. This chapter does not require your tax return to be current. Your qualified debts will be discharged after four to six months when you file for Chapter 7, but this is only for income tax debts.
Discharge Your Debt
In bankruptcy cases where you have other debts besides income taxes to be discharged, you should file for Chapter 11 or Chapter 13 bankruptcy. In a Chapter 13 bankruptcy case, your tax debt will have to be repaid, but you can enter into a court-approved payment plan to conveniently pay back these debts over multiple years. Once this payment plan is approved by bankruptcy court, the IRS cannot object to it. This can create a helpful way for you to repay your debt at a low or zero percent interest rate. If you’re wondering how filing for Chapter 13 will impact your taxes, keep in mind that you will need to file all necessary returns and pay due taxes throughout the course of your multi-year Chapter 13 payment plan. Doing so will get your debts discharged and prevent your bankruptcy case from being dismissed.
Similar to Chapter 13, a Chapter 11 bankruptcy filing is available for businesses facing bankruptcy, as well for individuals with more debt than the limit for Chapter 13 filing will allow. Other than that, Chapter 11 bankruptcy operates similarly to that of Chapter 13 bankruptcy.
If you file for bankruptcy, your priority debts can still be discharged at the end of the bankruptcy. Your federal, state, and local taxes can be discharged under Chapter 11 or Chapter 13 bankruptcy. Under Chapter 7 bankruptcy, only your income taxes can be discharged, but a newly filed tax return is not required.
Turn to Us
If you have questions about bankruptcy and how it will impact your taxes, contact bankruptcy lawyer Kenneth S. Borcia & Associates for superior bankruptcy services and advice you can count on. We know all the steps to take when filing Chapter 7 or filing Chapter 13 and have helped clients in
Lake County,
North Chicago,
Waukegan,
Round Lake, Zion and Antioch, IL when it comes to filing for bankruptcy.
Call us today.
