Do I Have to File all My Income Tax Returns Before Filing Bankruptcy?

by Gary on August 22, 2012

You may have read that Debtors must provide copies of their tax returns to the bankruptcy trustee. But what happens if you have not filed a return? Can you still file bankruptcy? In many cases the answer is “yes,” you can file bankruptcy. But, in some cases one or more tax returns may need to be filed before bankruptcy.

Why are returns unfiled?

We usually encounter two situations where returns are not filed. The simpler situation involves people who do not have to file returns, such as people who were unemployed or received only non-taxable income or not enough taxable income to file a return. If that is your situation, the easiest way to proceed in bankruptcy is to simply prepare a return for the most recent tax year and file it with the IRS. A copy of that return can then be provided to the bankruptcy trustee. However, it is also permissible in most judicial districts for your attorney to prepare for you an affidavit where you swear that you have not been required to file tax returns. The trustee can accept that affidavit in lieu of a copy of the tax return. Finally, even a return from years ago, if it was the last one you were required to file, will usually satisfy the trustee.

The other situation where tax returns are unfiled involves people who for whatever reason have not prepared and filed their returns. Sometimes, people cannot afford to pay their accountant. Other times, the preparation of the return seems like too much of a burden to undertake because of the time, the expense, or the lack of good records. Sometimes it is OK to proceed in bankruptcy without recent tax returns, but there are consequences, depending on which chapter of bankruptcy you file.

Chapter 7 Bankruptcy

If you file Chapter 7 Bankruptcy in the Dallas area, you are required to provide your most recently filed income tax return to the Chapter 7 Trustee, even if that return is from years ago. If you owe income taxes for any years where returns are not filed, the income taxes cannot be discharged in Chapter 7. If you are entitled to refunds for any unfiled return years, the refunds may be property of the bankruptcy estate to be paid to your creditors. Consult with your bankruptcy attorney for more information.

The bottom line is that you are not required to file all of your returns in order to file Chapter 7 bankruptcy. But, the most recently filed return must be provided to the Chapter 7 Trustee.

Chapter 13 Bankruptcy

If you file Chapter 13 Bankruptcy in the Dallas area, you are required to have filed all of the last 4 years of income tax returns. You can be exempted from this requirement if no returns were due, because you were not required under the Internal Revenue Code to file a return.

If you were required to file returns, but simply have not done so yet, the returns MUST be prepared and filed. Failure to file your income tax returns will result in dismissal of your Chapter 13 bankruptcy case, whether you owe taxes or not.

Cannot find a copy of your return?

The Internal Revenue Service can help you obtain a copy or transcript of your income tax return if you are unable to locate your filed return. Order a Transcript

Discharging Taxes in Bankruptcy

The question of what returns must be filed is separate from, but related to, what taxes are paid and/or discharged in your bankruptcy filing. The question of what income taxes can be discharged in bankruptcy is the subject of entire books. If you have income tax problems and are considering bankruptcy, consult with an attorney who has extensive experience dealing with IRS taxes in bankruptcy.

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