Filing for bankruptcy can be a daunting and overwhelming process, especially when it comes to dealing with taxes. If you are considering filing for bankruptcy or are already in the process, it is important to understand how bankruptcy can impact your taxes.
Bankruptcy and Taxes
When you file for bankruptcy, your assets and liabilities are reviewed to determine your financial status. This includes your tax situation. There are two types of bankruptcy that individuals typically file for: Chapter 7 and Chapter 13.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is also known as liquidation bankruptcy. It involves selling off your assets to pay off your debts. Any remaining debts are discharged, meaning you are no longer responsible for paying them.
When you file for Chapter 7 bankruptcy, your tax debts are included in the review of your financial situation. If you owe back taxes, they may be discharged along with your other debts. However, there are certain requirements that must be met in order for your tax debts to be discharged.
These requirements include:
- The tax debt must be at least three years old.
- The tax return must have been filed at least two years prior to filing for bankruptcy.
- The tax assessment must be at least 240 days old.
If your tax debt meets these requirements, it may be discharged in Chapter 7 bankruptcy.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is also known as a reorganization bankruptcy. It involves creating a repayment plan to pay off your debts over a period of three to five years.
When you file for Chapter 13 bankruptcy, your tax debts are included in the repayment plan. You will be required to pay off your tax debts over the course of that repayment period, along with your other debts. However, the interest and penalties on your tax debts may be reduced or eliminated altogether.
Tax Returns and Bankruptcy
When you file for bankruptcy, you are required to provide a copy of your most recent tax return to the bankruptcy trustee. This is to ensure that your tax situation is accurately represented in the review of your financial status.
If you have not filed your tax returns, you will need to do so before filing for bankruptcy. Failing to file your tax returns can result in your bankruptcy case being dismissed.
Tax Refunds and Bankruptcy
If you are expecting a tax refund, it is important to understand how it may be impacted by your bankruptcy. If you have filed for Chapter 7 bankruptcy, your tax refund may be considered an asset and may be used to pay off your debts.
If you have filed for Chapter 13 bankruptcy, you may be required to turn over your tax refund to the bankruptcy trustee. The trustee will then use the funds to pay off your debts.
Contact the Law Office of Joel R. Spivack Today for Your Free Consultation!
Filing for bankruptcy can be a complex and overwhelming process. It is important to understand how bankruptcy can impact your tax situation. If you are considering filing for bankruptcy, it may be beneficial to consult with an experienced, local bankruptcy attorney to ensure that you are fully aware of your rights and responsibilities.
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We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code in NJ and PA.
