While being current with taxes owed to the Internal Revenue Service is
not necessary to file a bankruptcy case, it is necessary to have all of
your taxes filed for a variety of reasons addressed below. Bankruptcy
can be used to address tax obligations and taxes owed to the IRS can be
discharged in bankruptcy in certain circumstances.
In a Chapter 13 filing, it is mandatory, and you must certify, that you
have filed your applicable tax returns for the four years immediately
preceding your bankruptcy case. All tax returns must be filed no later
than seven days prior to the Meeting of Creditors, irrespective of any
extensions to file tax returns granted by the IRS. Having these taxes
filed also helps you, as the Debtor, determine whether any refund will
affect your income calculation or whether any taxes owed will impact your
monthly Chapter 13 Plan reorganization. Additionally, the lack of having
your taxes filed forces the IRS to file a claim in your case estimating
any potential taxes you may owe. This can not only hinder your ability
at a successful reorganization, but the figures estimated by the IRS could
have a disadvantageous effect on your filing.
The filing of tax returns in a chapter 7 varies from that in a chapter
13 and the timing of the filing and the tax refund can prove to be crucial.
When you file your tax returns, the amount of your refund – if any,
the nature of your refund (Earned Income Credit, Child Tax Credits or
overpayment of tax withholdings.), how your spent your refund, the exemptions
available to you, and when you filed your case all play a major role.
An experienced attorney can assist you in determining how much of an impact
your tax returns and refunds may have on a Chapter 7 filing.