How Do Taxes Work After You’ve Filed for Bankruptcy?
Bankruptcy is a time of great stress and uncertainty for many Americans, but it doesn’t have to be. With an experienced legal team on your side, you can rest assured that you’re in good hands. At Davis, Ermis and Roberts, LLC, we’ve been helping our clients navigate the maze of bankruptcy law for years.
Our legal specialists are here to help you through your most troubled times. We make sure your bankruptcy proceedings go off without a hitch by ensuring everything is filed properly and on time. We help you gather all the necessary documents, assist you with your court dates and depositions, and end creditor harassment. We have the answers to all your questions, including questions about how bankruptcy affects your tax filing and debt.
Bankruptcy and Tax Debt
The idea of bankruptcy is to dissolve debts the bankrupt individual cannot afford to pay, while protecting their most important assets from seizure (their house, transportation, work tools, etc.). This can be accomplished by liquidating the person’s non-exempt assets to pay their debts, or by consolidating the debts and creating a monthly payment plan that is more affordable.
Most debts can be discharged through bankruptcy, with the exception of an important few – including tax debt. Taxes you owe must be paid, regardless of your bankruptcy status. In fact, failing to file your tax return and pay your taxes on time can jeopardize your bankruptcy case. The court could decide to dismiss your case entirely.
Filing Tax Returns After Bankruptcy
Bankruptcy can change the way you file your tax return, depending on which kind of bankruptcy you’ve declared. If you’re filing for Chapter 7 bankruptcy, you will file your usual 1040 tax form and your court-appointed trustee will file a 1041 bankruptcy estate return.
If you file for Chapter 11, you will need to file both the individual 1040 return and the 1041 bankruptcy estate return. Filing two tax returns is the major difference between filing your returns pre- and post-bankruptcy. Hire a skilled, experienced bankruptcy attorney to make sure everything is done properly and you don’t miss any deadlines.
Tips for Tax Returns and Refunds
You must file all required tax returns for tax periods ending within four years of your bankruptcy filing. When you contact your bankruptcy attorney, let them know if you have filed returns for all the tax periods required. Pay your taxes according to schedule. If you cannot afford to pay your taxes, contact the IRS as soon as possible to request a deadline extension or set up a payment plan. The sooner you address your inability to pay, the better. Ignoring the issue can result in fines and dismissal of your bankruptcy case.
If you have not filed your tax return for the latest period, consider doing so before you file for bankruptcy. If you have filed your return, you will want to make sure your lawyer has all your tax records. If you received a refund, go ahead and prepare a statement explaining how you used it. The trustees will want to know. Don’t use your refund money to pay your debts, because doing so will only slow down your case.
Davis, Ermis and Roberts, LLC: Your Dallas Bankruptcy Experts
Bankruptcy can be confusing and frustrating when you try to go it alone. Fortunately, you’ve got Davis, Ermis and Roberts on your side! We represent clients from all over the Dallas-Fort Worth Metroplex, and we will happily walk you through the bankruptcy process one step at a time. Call us today to schedule a consultation!