Prospective clients considering bankruptcy often ask if it is possible to file a Chapter 13 bankruptcy case with outstanding, unfiled tax returns. Filing a bankruptcy case with delinquent tax returns is simply not a good idea since it may cause a Chapter 13 case to be dismissed by the Bankruptcy Court. Why waste your money by paying legal, filing, and credit counseling fees if your case will ultimately be dismissed?
Bankruptcy trustees in all types of bankruptcy cases verify a debtors’ income by reviewing their tax returns. This occurs in all cases, whether filed under Chapter 7, 11, 12, or 13. When tax returns are not filed for a particular year, the IRS estimates a taxpayer’s tax debt and assesses it accordingly when filing a proof of claim in a debtor’s case. If the plan were confirmed using the IRS estimates, plan payments would be excessive and a debtor would overpay the IRS, which is a result that, surprisingly, is not permitted by federal law.
Pursuant to 11 U.S.C. § 1325, a bankruptcy court may only confirm a chapter 13 plan of reorganization if a debtor has filed all applicable Federal, State, and local tax returns as required by § 1308 of Title 11 (aka the Bankruptcy Code). § 1308 requires that Chapter 13 debtors have tax returns filed for all taxable periods ending during the 4-year period ending on the date of the filing of a bankruptcy case. These returns must all be filed before the meeting of creditors, which typically occurs four to six weeks after the initial filing of a bankruptcy petition.
Under Local Bankruptcy Rule 1017-2 of the Southern District of Florida, a court may dismiss a voluntary case under any chapter without further notice or hearing for failure by the debtor to file required documents. A debtor must clearly indicate to a trustee if tax returns were not required to be filed because of insufficient income.
§ 521(j) provides a taxing authority with the ability to request dismissal or conversion of the case for a debtor’s failure to file a tax return that becomes due post-petition, i.e., after the commencement of the case. A trustee may, but is not required to, request the filing of post-petition tax returns under § 521(f). The trustee is also not required to report the non-filing of post-petition tax returns to the United States Trustee.