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Tax obligations while your bankruptcy is pending or discharged

Bankruptcy can change how you go about filing your taxes. One of the worst mistakes you can make is assuming that the way you’ve filed them at other stages in your life is the same approach you’ll use when your bankruptcy is still pending or recently wrapped up.

Instead, as someone with an impending or recently discharged bankruptcy, you’ll essentially be seen as what amounts to an “estate” after you file for bankruptcy.

If you’ve qualified for a Chapter 7 bankruptcy, you’ll want to file a 1040, reporting any income for the previous year accordingly. At the same time, the trustee in your case will be responsible for filing a 1041 on the debts belonging to your bankruptcy estate.

For those who qualify for Chapter 11 bankruptcy though, since the debtor remains in possession of the assets in the case, he or she will be required to ensure that both the 1040 and 1041 get filed. Any failure to file both could potentially result in the bankruptcy case being either dismissed or converted.

As for Chapter 13 bankruptcy, the debtor is required to make monthly payments into an account which later gets distributed to creditors. In this type of case, it’s expected that the debtor turns over those returns for the trustee’s review and refunds for distribution to creditors. With Chapter 13 cases, the trustee files the 1041 form.

It’s critical that Chapter 11 and 13 filers stay current in filing taxes and making payments. If they fail to do so, they risk having their case converted to a Chapter 7 one.

If you are considering initiating either a Chapter 7, 11, or 13 filing, you’ll want to make sure to correctly address your tax obligations. To avoid your case being converted or dismissed because you didn’t, you should consult with an experienced Tampa bankruptcy attorney.

Source: Intuit Turbotax, “Filing Taxes After Filing for Bankruptcy,” accessed Aug. 11, 2017