The last year hasn’t gone as well as you’d hoped, financially speaking, and you’ve decided to file for bankruptcy. However, you’re still hoping that you’ll at least get a nice tax return when you file. Are you still eligible for the return if you’re working your way through the bankruptcy process?
You are. In many cases, those who file their taxes properly and are owed a refund will still get that refund.
There are exceptions, however. For example, is any of your debt due to back taxes that you owe? If a portion of that debt is owed to the Internal Revenue Service, then the IRS may keep the tax return and put it toward your debt. Remember that tax debts are not typically discharged in bankruptcy.
That doesn’t mean you can’t use bankruptcy to get rid of your other debts, perhaps making those back taxes affordable again. Just don’t assume that you can file for bankruptcy, discharge your tax debt, and then get a tax refund the next week.
The IRS also warns that even the tax refund that you do get may be delayed. You can contact the IRS to find out if this happened in the event that you feel like you’ve been waiting too long for that check to arrive.
As you can see, the way that taxes and bankruptcy are linked will vary from case to case. It is very important to know exactly where you stand, what legal rights you have and how that Chapter 13 bankruptcy filing is going to impact the rest of your financial picture for the year.
Source: Internal Revenue Service, “Chapter 13 Bankruptcy – Voluntary Reorganization of Debt for Individuals,” accessed Jan. 26, 2018