Reasons to Resolve Unfiled Taxes Before Declaring Bankruptcy
If you’ve been considering bankruptcy and have even one year of not filing your tax returns, your case could be over before it begins. It’s important to resolve any unfiled taxes before bankruptcy in Montgomery County, TX—the court will want to know the specifics of your financial situation, and that includes how much you may owe to or are due from the government.
When you file for bankruptcy, you’re essentially asking the court to look at your finances and help you discharge your debt, in exchange for honesty about your income and assets. The idea is to make sure as many creditors are paid as possible while still allowing you to work and provide for your and your family’s needs. That’s why taking income tax into account is so important—debts to the IRS will be counted as part of your bankruptcy estate, and income tax refunds may be seized and distributed to your creditors, depending on the facts of your case.
Chapter 7 bankruptcy
When you file for bankruptcy, part of the process will involve “the meeting of the creditors.” That’s when you and the trustee meet, along with any creditors who wish to attend, to review your income and assets and determine how your creditors will be paid. In a Chapter 7 filing, you have up until seven days before the meeting of the creditors to file your past due tax returns.
Note that you may be allowed to keep your refund under a trustee’s discretion, or a bankruptcy exemption. Your lawyer will have more information to guide you.
Chapter 13 bankruptcy
In Chapter 13 filings, you will need to have tax returns from the past four years, and you have until the day before the meeting of the creditors to get it done. This is in your best interest, as it could satisfy tax liens, discharge tax debt more than three years old and other important considerations. Plus, not filing your taxes will frustrate the trustee—and they could even send your case to federal bankruptcy court, which tends to be far less lenient.
In all cases, if you wish to keep your tax return and you haven’t filed yet, you can wait until you’ve received the return and have spent it on necessities (rent/mortgage, food and other living expenses—not for the purchase of other assets). Since it was already spent in good faith, it won’t be seized and distributed.
Get help with unfiled taxes and bankruptcy filings in Montgomery County, TX
Serving Montgomery County, TX since 1993, James R. Jones, Attorney at Law is licensed to appear in state court as well as the United States District and Bankruptcy Courts in the Southern District of Texas and the United States Court of Appeals for the 5th Circuit. Our team is here to help you through the bankruptcy process, including providing advice on how to approach your unfiled taxes and other important considerations. Reach out to us today to schedule a free 30-minute consultation to discuss your case.
Categorised in: Bankruptcy