Can I file a Chapter 7 Bankruptcy before filing my 2010 and 2011 Tax Returns?

Asked about 2 years ago - San Diego, CA

I am considering filing for Chapter 7 Bankruptcy. I do not have enough money to pay a CPA to file my 2010 and 2011 tax returns, and I don't want to file them myself. Can I file for Chapter 7 BK or will my failure to file taxes affect my ability to discharge my debts? Also, if I do file and the debt is discharged, do I need to pay taxes on the forgiven debt?

Attorney answers (7)

  1. Raihana Niazi

    Contributor Level 7

    2

    Lawyers agree

    Answered . This maybe more a jurisdictional question, meaning that each district or trustee may have its, his/her idiosyncracy regarding this. However, per bankruptcy code, you must send your most recent tax returns at least 7 days before the scheduled court hearing also known debtor's examintation or most commonly known as the 341(a) hearing. If you have not filed your taxes and don't do so before the said day, you may risk a dismissal of the case. Refiling of the case triggers automatic stay protection issues, a subject you need to talk about to an attorney. Also, if you didn't or can't file your taxes for legitimate reasons such as too little income to necessitate filing, then you must submit a declaraion stating the reason for not filing.

  2. William James Waters

    Contributor Level 14

    1

    Lawyer agrees

    Answered . No, you do not need to file your tax returns in order to file a Chapter 7. At least 7 days before the 341(a) meeting of creditors, you need to provide the trustee with a copy of your most recently filed federal return, which it sounds like for you would be your 2009 return. The trustee may want a declaration from you as to why no more recent return has been filed. Some may want a more recent return and will give a couple weeks to get it filed. After your discharge, you will need to file form 982 to eliminate any taxes on 1099C discharged debt.

  3. Kathryn Ursula Tokarska

    Contributor Level 16

    1

    Lawyer agrees

    Answered . You should file the returns before you file your bankruptcy, unless you know what refund you will be receiving, if any, and also what your income was for 2010 & 2011 because one of the bankrutpcy forms, called Statement of Financial Affairs, asks specifically what the income has been in the past two years. Having said that, if you don't file the returns before filing your case, you could potentially file them after filing your bankruptcy case (as long as you do it so that you can supply the 2011 return to the Trustee as other counsel stated at least 7 days before the creditor's meeting, and then if need be, you can amend your petition with the information gained from the returns. Be sure to amend schedule B and schedule C if you going to receive a refund, because you must claim this asset as exempt property or the trustee can take it for the creditors. No, there is no income tax due on debts that were forgiven in bankruptcy.

  4. Brian Crozier Whitaker

    Contributor Level 17

    1

    Lawyer agrees

    Answered . Whether you file or don't file will not affect your ability to discharge your dischargeable debts. The Bankruptcy Code requires that you provide the Trustee with the tax return for the year immediately preceding the filing of your BK "if filed". The US Trustee has, incorrectly in my opinion, taken this to mean your most recently filed return whether for the immediately preceding year or not.
    You are not required to provide a return which has not been filed, and the Trustee does not have the power to force you to file one. He/she does, however, have the power to hold your case open until you do if he/she thinks there may be a non-exempt refund. But if there is enough wildcard exemption to exempt the taxes that were withheld, there is no issue.
    No - you do not need to pay taxes on debts discharged in BK.

  5. Marc Gregory Wagman

    Contributor Level 17

    2

    Lawyers agree

    Answered . You must at least file you 2011 return and send it to the trustee for them to hold the 341 meeting. You wont have tax liability on the debt discharged. Some trustees will not enforce the two year tax rule and only care about the 2011 return, but you are better off filing your taxes before filing the bankruptcy period. The case risks dismissal and wasting the filing fee. If you have to file yourself that is much better than risking dismissal of the bankruptcy. Your tax returns can be amended or corrected later. However, if you have a reason for a CPA such as a business you need both a CPA to do the taxes and you should get a lawyer also.

    The response given is not intended to create, nor does it create an ongoing duty to respond to questions. The... more
  6. David Watson Wiese

    Pro

    Contributor Level 10

    Answered . There are excellent answers already that address most of your issues. I’ll just add a bit about discharging income tax debts because you asked if failure to file returns will affect the ability to discharge debts, or if there would be an income tax assessed on the liabilities discharged in bankruptcy.

    For income taxes to be discharged in a chapter 7 they must satisfy four conditons:
    1. The income tax debt must have become due at least 3 years prior to filing bankruptcy;
    2. The income tax returns must have been filed in a timely manner (any unfiled returns must be filed with the IRS at least two years prior to filing bankruptcy);
    3. If the income tax is an assessment, the assessment must have occurred at least 240 days prior to filing bankruptcy;
    4. The income tax liability is not the result of willful evasion or fraud.

    Debts discharged in bankruptcy are not treated as income.

  7. Curtis Lamar Harrington Jr

    Contributor Level 20

    Answered . "I don't want to file them myself". No one likes having to file tax returns and pay tax. You are indicating that you have taxes owing for 2010 and 2011. If you go through the bankruptcy process and press your "right" not to have to file returns, are you also going to eliminate listing IRS as a creditor? Are you ready for IRS to possibly oppose your discharge? What about the tax liability for 2010 and 2011, are you going to estimate it? Are you going to pick a random number?
    Is your position consistent with the bankruptcy requirement of full disclosure?

    Check out the Vita program and get help with your taxes without hiring a CPA.

    Please remember to designate your question's BEST ANSWER.

    Please remember to designate your question's BEST ANSWER.

    Curt Harrington
    Certified Tax Specialist -- State Bar of California Board of Legal Specialization
    Electrical-Chemical-Mechanical Patent (Intellectual Property) Attorney
    (562) 594-9784
    http://patentax.com/curt/index.html
    About Curt: http://patentax.com/curt/index.html
    Visit the Library: http://patentax.com/library/

    Curt Harrington Patent & Tax Law Attorney Certified Tax Specialist by the California Board of Legal... more

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