Written by Robert DeMarco
Should I File My Taxes Before or After Declaring Bankruptcy?
If you plan to file for bankruptcy, it is a good idea to ensure your current tax returns. From there, your next course of action will depend on the type of bankruptcy you plan to file: Chapter 7 or Chapter 13.
Filing Chapter 7 Bankruptcy During Tax Season
When you file for Chapter 7 bankruptcy, the trustee in charge of your case will request your most recent tax return. Note that your most recent tax return does not necessarily mean the most recent tax year.
The trustee will compare your income on your tax return to the amount listed in your bankruptcy paperwork. If you demonstrate that you are entitled to a refund, the trustee will want to ensure that you have the right to safeguard it and that you have claimed the appropriate exemption amount. If you do not, you must return the refund to the trustee, who will distribute it to your creditors.
Filing Chapter 13 Bankruptcy During Tax Season
You must be current on your tax returns before filing a Chapter 13 case. Before the 341 meeting of creditors, you must provide the Chapter 13 trustee with copies of your returns for the previous four tax years.
You have control over your assets and how you repay your creditors in a Chapter 13 bankruptcy. As a result, while you will not lose your tax refund, you must disclose the right to receive it as part of your list of assets when the case is filed.
When is the Best Time to Declare Bankruptcy?
Filing your taxes will not feel as much of a burden when filing Chapter 13 when you realize the advantages of your tax debt.
Dischargeable taxes, those older than three tax years, might be forgiven without any payment at all. While you are in Chapter 13, you will not have to pay any additional interest or penalties on dischargeable past-due taxes.
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