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Will Bankruptcy Affect My Taxes?
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Will Bankruptcy Affect My Taxes?

Will Bankruptcy Affect My Taxes?
January 17, 2024

If you filed for bankruptcy, you may wonder what this could mean when it’s time to file your taxes. The connection between tax and bankruptcy laws can indeed be challenging to navigate. It may not be clear how your bankruptcy case will affect your tax obligations or what steps you need to take to ensure everything is done correctly. That’s where our team at Whitten & Whitten comes in. Our attorneys are ready to clarify the process and answer your questions regarding the next steps. Contact us today for a case evaluation where you can receive personalized legal advice.

Tax Debt and Bankruptcy

One of the most pressing issues for many individuals filing for bankruptcy is managing their tax debt. If you’ve been receiving letters from the IRS due to unpaid tax debt, filing for bankruptcy can bring some relief. An automatic stay goes into effect once you file, halting IRS collection efforts. Depending on the specifics of your situation and the type of bankruptcy filed, it may even be possible to discharge your tax debt. However, certain conditions must be met for tax debt to be discharged, especially in a Chapter 7 bankruptcy case. It’s important to discuss these details with an experienced attorney to understand what applies to your circumstances.

What Happens to Tax Debt Accrued After You File for Bankruptcy?

Filing for bankruptcy doesn’t mean you’re exempt from fulfilling your tax obligations. In fact, accruing new tax debt after filing for bankruptcy can have negative implications on your case. It’s essential to keep in mind that debtors cannot acquire any new delinquent balances while under the court’s supervision. If you find yourself unable to pay your new tax debt, your case could be dismissed or converted to a Chapter 7, especially if you had initially filed a Chapter 13 bankruptcy.

How to File Taxes After Bankruptcy

The procedure to file taxes after bankruptcy is generally the same as before filing. However, there are some additional forms you may need to file depending on your specific case. For example, if you receive a 1099-C Cancelation of Debt from a creditor after receiving a discharge, you will need to file an IRS form 982 with your taxes. This notifies the IRS of the discharge of the debt in bankruptcy.

In Chapter 7 bankruptcy cases, debtors are required to file a standard 1040 tax return. Meanwhile, in Chapter 13 bankruptcies, where the debtor pays into a monthly plan to pay back their creditors, the debtor files a 1040 form, while the trustee files a Form 1041 for the bankruptcy estate.

Contact Our Attorneys to Discuss Your Case

Navigating the intersection of taxes and bankruptcy can be difficult. But remember, you don’t have to face this challenge alone. Our team at Whitten & Whitten is here to help. We have the knowledge and experience to guide you through these complexities, providing clarity and peace of mind.

Whether you’re wondering about tax debt and bankruptcy, concerned about accruing new tax debt, or unsure about how to handle your tax refund or filing taxes after bankruptcy, we can provide the guidance you need. Call today to set up a consultation.

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We are a debt relief agency. We help people file for bankruptcy relief under the bankruptcy code. This information is designed for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship. Past results and testimonials are not a guarantee, warranty, or prediction of the outcome of your case, and should not be construed as such. Past results cannot guarantee future performance. Any result in a single case is not meant to create an expectation of similar results in future matters because each case involves many different factors, therefore, results will differ on a case-by-case basis. By providing certain contact information herein, you are expressly authorizing the recipient of this message to contact you via the methods of communication provided.