Sometimes bankruptcy can be the best way to begin one’s financial life afresh. However, the laws and processes of bankruptcy are difficult to understand and you can easily make mistakes. So, it is important to consult an experienced and knowledgeable bankruptcy lawyer like The Recovery Law Group. You can visit them at Recovery Law Group or call 888-297-6203.
Given below are five problems related to tax returns, which must be avoided before filing for bankruptcy.
- A delay in filing the income tax returns is not advisable. Debtors, who make genuine and good attempts to follow tax laws and filing requirements, are favored more by bankruptcy courts. Bankruptcy law treats tax debts uniquely. Normally, the older tax liability is more likely to be discharged in Chapter 7 bankruptcy, provided the debtor was not involved in tax evasion.
- Late returns can highly complicate the issue of discharge. As per the Bankruptcy Code’s definition of ‘return’, a return should satisfy all laws of non-bankruptcy and applicable requirements for filing. If the late filing won’t meet all the criteria, as per the court’s analysis, your tax debt, for that year, won’t be discharged.
One of the examples of such a situation is the case of Van Arsdale. In re Van Arsdale, the debtor had filed the tax return after the filing of a substitute return by the IRS. Thus, the late tax return was declared a no ‘return’ under the bankruptcy code, by the Bankruptcy Court for the Northern District of California.
- The filing of missing tax returns should not be delayed. The tax debt becomes a part of your repayment plan with other types of debts, in Chapter 13 bankruptcy. Before your first meeting with the creditors, file all the tax returns which are needed during the period of 4 years, prior to the date of your petition.
- Remember to provide your bankruptcy trustee with a copy or transcript of your most recent tax return, a year prior to filing for bankruptcy. This shall be received at least 7 days before the creditors meeting. Also, never give away your only tax return copy to a trustee, and always keep extra copies of it, as other interested parties might also request to see it.
- You should not disclose your date of birth, social security number, bank account numbers, and other personal data while submitting the tax returns to the court and trustee.
Remember that your tax obligations are not subjected to automatic stay after filing for bankruptcy. So, keep filing timely tax returns even after the commencement of your bankruptcy case, and also keep a track of your income and expenses.