Filing your taxes after you file for bankruptcy might seem like a great way to get an advantage on increasing your return, but the truth is that there is no real benefit in waiting to get your taxes done. In fact, the best course of action is to be as current and up to date on your filings in order to maximize any money that you are owed.
Whether you are filing Chapter 7 or Chapter 13 bankruptcy you will need to submit your taxes to the trustee overseeing your case. You may not plan to give them your most recent tax returns but if you do not the trustee will ask for a reason why. Chapter 7 bankruptcy differs in that the trustee will only look at the one return to compare the income listed on this form to the one in your bankruptcy filing. In the event that you are owed a refund, the trustee will protect and keep that amount exempt if at all possible. If the trustee cannot exempt your refund amount they will then allocate it to your creditors in order to pay off your debt.
Chapter 13 bankruptcy requires you to provide up to four years of tax returns before the mandatory meeting all filers must attend called the 341 meeting of creditors. At this point in time you can either prove to your trustee that you are not required to file a return, or if you do not file the return on time to the IRS you can either ask for an extension or the IRS can file a “substitute” return which basically amounts to what the IRS’s best guess is at the amount that you owe.
Neither of these is a great option, and it is clear that if you do decide to file your taxes before filing for bankruptcy there are distinct advantages to doing so. From getting the interest on the taxes you owed reduced, as well as possibly being able to get some taxes forgiven completely there are definitely benefits in managing your bankruptcy in this way.
No one enjoys filing their taxes, and doing so while also filing for bankruptcy can be overwhelming. Let an experienced attorney easily guide you through a confusing process. Contact the Law Office of Joel R. Spivack at 856-488-1200 or by filling out our online contact form to schedule a consultation today.
The articles on this blog are for informative purposes only and are no substitute for legal advice or an attorney/client relationship. If you are seeking legal advice, please contact our law firm directly