It's no secret that federal agencies communicate with each other about many issues. For bankruptcy filers, tax matters and their bankruptcy cases can also be connected in ways you should know about. Taxes issues can be complex, as can any issue dealing with financial matters. That means filers should seek professional legal help if they have more questions. The below information, however, provides filers with some general information about taxes, bankruptcy, and how they affect each other during the process.
Include a Recent Tax Return – Your bankruptcy paperwork bundle should include a copy of your most recent tax filing. It's one of the documents your bankruptcy trustee will be reviewing as they check over your financial situation and determine your ability to obtain a discharge.
You Must File Your Taxes – This tip should be taken seriously because you cannot receive debt forgiveness if you have not taken care of that action. If you did not file taxes during the prior year, you might need to take care of that. If you don't normally file taxes and are not legally required to do so, you should not have an issue filing for bankruptcy. However, if you have not filed for several years and should have done so, speak with a bankruptcy attorney. You can probably still file for bankruptcy, but you will need a lawyer to guide you through the process.
Questions During the Creditor's Meeting – When you appear before the bankruptcy trustee at the creditor's meeting, you will be asked several questions and one of them will be about your tax return. You are under oath to tell the truth when you are asked, among other things, if you have filed taxes for the most recent tax year. One major reason for the interest in your filing status has to do with your potential refund. If you are owed a refund, those funds could become the property of your bankruptcy case because they are considered an asset.
When You Owe the IRS Money – Some filers could get tax debt relief with a chapter 7 filing if the timing is right. All returns for tax years at least three years in the past for which the filers still owe money could qualify the filer to discharge that debt. Taxes owed on returns less than three years old, however, will receive no discharge of taxes owed.
To find out more about this complex issue, speak to a bankruptcy attorney for advice.