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Filing Tax Returns and Bankruptcy

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.