How do my taxes impact my bankruptcy?
We know that the decision to file for bankruptcy can be quite complicated and can involve a number of different issues and even a number of different people. We are here to help in any way we can. We have found, during our years of practice, that often times bankruptcy and tax issues often go hand in hand. Meaning, that individuals filing for bankruptcy may also have back taxes or unfiled taxes that will need to be addressed before filing for bankruptcy.
When you file for bankruptcy you will be asked to provide copies of your most recent tax return. Of course, that means you had to have filed your tax returns. You may be asked for up to three years of tax returns in some instances. For that reason, we will ask you if you have filed your returns and we will ask for you to provide us with copies. If you were not required to file your taxes for any given year we will provide you with paperwork to document that for the bankruptcy estate.
If you have back returns to file you should file them as soon as practicable. Now, if you owe the IRS money the bankruptcy courts will probably not say much about this. Though, remember, taxes are not generally dischargeable (even in a Chapter 7) unless they are very old and the returns were timely filed. So, if you are just filing them the amount owed will not yet be dischargeable. If you are owed money by the IRS we will need to discuss this with you personally. There are a number of different outcomes based on the amount expected and what you intend to do with that money. Though, as a general rule, we advise clients to wait until they have received the money and spent those funds on regular living expenses prior to filing to avoid those proceeds being absorbed into the bankruptcy estate. If that is not possible we may be able to exempt those amounts and you may be able to keep the proceeds. However, it is imperative that you discuss this with us prior to filing your bankruptcy.
You are also required to file your taxes while in bankruptcy. If you file for bankruptcy near or during tax season the trustee may hold your bankruptcy case open to determine if you are entitled to a refund, and if so, how much of a refund you are expecting.
If you have questions about this, or any other bankruptcy questions, please contact your St. Louis Bankruptcy Attorney for a free consultation today!