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5 Tips on Taxes and Bankruptcy


If you are currently filing for bankruptcy or are planning to file for bankruptcy, then you should be aware that your tax returns require a different process. Since it is tax season, it is best if you educate yourself on the process. Before you get started there are certain things that are beneficial to know.

If you are filing chapter 7 then you will file a 1040 form as usual. If you are entitled to receive a refund, it is an asset of the bankruptcy estate. If you are filing chapter 13 you as a debtor are paying disposable income into a monthly payment plan to pay back the creditors. Because of this, "you will provide the returns to the trustee and turn over all refunds for payments to creditors," for as long as you are in bankruptcy, according to Carl Archer, bankruptcy expert.

1. Get Organized

If you have already filed your taxes and filed for bankruptcy, now is the time to organize your tax records and provide them to your attorney. It is also necessary to let the trustee know how you used any refund money.

2. Beware of Dismissal

If you are filing chapter 13 and you fail to file taxes your case can be dismissed. You must also file tax returns for the four years preceding the filing of a bankruptcy, if you are required to file returns. Always file a return even if you owe taxes. There are payment plans that can help if you are unable to pay the full amount.

3. First Taxes, Second Bankruptcy

If you haven't filed for bankruptcy yet, you should consider filing your taxes first. Unless your tax refund is exempt, filing bankruptcy before taxes will put the trustee in charge of distributing your refund among your creditors.

4. Save Your Refund

If you file your taxes and you receive a refund it is best if you do not pay your creditors, including repaying friends and family members, with the money. If you do you may be throwing your money away or causing a significant delay in filing. Remember, you can repay your friends back after the bankruptcy filing.

5. File On Time

Everyone should file their taxes on time each year. The April 15th is the deadline and a lot of headaches can be saved if you don't wait. As previously mentioned, first file, then work out a payment plan through the IRS if you are unable to afford the full amount owed.

We at Timothy J. Sierra Attorney at Law would like to state that our blog posts and links, on our web page or any other social media outlet, to any other web pages are not intended for legal advice. We are not responsible for third party website information. If one is in need of legal advice please contact an attorney directly.

Source: TurboTax | Taxes

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