Our Maryland and Washington DC Bankruptcy Attorney Can Answer Your Questions
Filing for bankruptcy can lead to a number of questions that many of those struggling with debt are unable to answer on their own. One such concern individuals filing for bankruptcy may question is whether they should include this information in their tax returns. Understanding how to file your bankruptcy on your taxes can ensure that you properly complete a Chapter 7, Chapter 13 or another type of bankruptcy, and get the opportunity to have a fresh, debt-free start.
How Do I File My Taxes During Bankruptcy?
In both Chapter 7 and Chapter 13 bankruptcy, your taxes will likely not significantly change. You will need to file an individual 1040 tax return with the Internal Revenue Service (IRS), just as you did in previous years.
However, when you file for bankruptcy, the IRS makes your assets a taxable entity. The IRS will not tax your bankruptcy discharge, but you do need to pay for taxes on all assets that you exempt from the bankruptcy process. Your bankruptcy trustee will need to file a separate 1041 form for your estate to account for this tax. Bankruptcy should not significantly change the way you file your taxes, but you should make sure that your trustee accurately and promptly files a report on behalf of your taxable estate.
Can I Keep My Tax Refund If I File for Bankruptcy?
In Chapter 7 bankruptcy, the term “assets” has a very broad definition that can include more than your car and what is in your bank account. Any tax refund you receive during the year you declare bankruptcy becomes a part of your bankruptcy estate, which the bankruptcy trustee handles. Your trustee will then use the refund you receive to pay creditors. However, you may be able to keep part of your refund if it was earned after you filed for bankruptcy.
The Chapter 13 repayment plan requires that you put all your disposable income into it. Bankruptcy trustees consider tax refunds to be disposable income, because your plan specifies that you can afford all of your necessary expenses without the refund. However, you may be able to modify your Chapter 13 repayment plan in some situations to excuse your tax refund if you need it to pay for something necessary. Talk to a qualified bankruptcy attorney to find out how to modify your Chapter 13 repayment plan so that you can benefit from your tax refund.
I Need Advice About Filing for Bankruptcy
Washington DC and Maryland bankruptcy lawyer Kevin D. Judd is always ready to answer your questions, explain common bankruptcy myths and help you get through the bankruptcy process. He is knowledgeable about all aspects of bankruptcy law and focuses on working with individuals and families dealing with large amounts of debt. For free attorney advice about bankruptcy, call the Law Firm of Kevin D. Judd today.