How Does Bankruptcy Affect Your Taxes?

As the spring weather starts to feel like summer, you often see advertisements encouraging people to spend their tax refunds on new furniture, a vacation, or a down payment on a new car to add to the trade-in value of their old car. Your frenemies on social media, or the lifestyle influencers whose content you hate-watch, might even brag about the purchases they made with their tax refunds. You are wise enough by now to know that this type of content is not realistic. If anyone gets a tax refund anymore these days, it goes to paying off a few late fees on a few debts, and even then, it does not make much of a dent. The rest of us end up owing money to the IRS so that our tax debts get bigger even as the balances of our other debts hold steady despite the fact that we pay at least the minimum payment on them each month.  Is filing for bankruptcy a way out of this conundrum?  A bankruptcy filing can discharge debts, and in some cases, it can do it quickly, but it does not make you invisible to the IRS.  If you are considering filing for bankruptcy, contact an Oakland Chapter 13 bankruptcy lawyer before you get too carried away daydreaming about how you will spend next year’s tax refund.

Do You Still Have to File a Tax Return While Your Bankruptcy Case Is Pending?

If you file for Chapter 13 bankruptcy, you must still file an income tax return by filing a Form 1040.  Chapter 13 is the most common type of bankruptcy filing; it is for individuals who have a steady income from employment.  In a Chapter 7 bankruptcy filing, the bankruptcy court may take control of some of your assets, creating a bankruptcy estate.  You must also file a tax return, but in some cases, the bankruptcy estate must also file a Form 1041.  Some debts discharged in bankruptcy may count as taxable income.

Can the Bankruptcy Court Take Your Tax Refund?

If your bankruptcy case is pending or you have entered a debt repayment plan, the bankruptcy court has the right to take your tax refund and pay it to your creditors.  Once your bankruptcy case is complete, your tax refunds are yours to keep.

Is it Possible to Discharge Tax Debts in Bankruptcy Court?

It is sometimes possible to discharge tax debts in bankruptcy court, but the requirements for doing so are strict. It is simpler to discharge your consumer debts, such as credit cards and medical bills, and to use your money to pay tax debts instead. You may be able to discharge your tax debts, but only if you have filed the tax returns for the years for which you are seeking to discharge the debt at least two years before you filed for bankruptcy.

Contact the Law Office of Melanie Tavare About Debt Relief for Taxpayers

A debt relief lawyer can help you if discharging your tax debts would bring you the financial relief you need. Contact the Law Office of Melanie Tavare in Oakland, California, or call (510)255-4646 for a case evaluation.