Besides weighing the pros and cons of filing for bankruptcy, one thing many people fail to take into account are the tax-related consequences. With the tax season deadline right around the corner, it’s worth taking a look at the subject and what you can expect.
If you file for Chapter 7 bankruptcy there will be two estates created: an individual and a bankruptcy estate. The latter will be overseen by a trustee and both of these estates will be treated uniquely when it comes to filing taxes. You’ll still be filing a standard tax return for your individual estate using Form 1040, but it should only include income, deductions, and credit for your individual estate. The trustee will take care of filing the other form (1041) for the bankruptcy estate independently. Once your case closes, if you have any remaining assets in the estate, they will be returned to you.
Unlike a Chapter 7 bankruptcy, Chapter 13 does not include two separate taxable estates. With Chapter 13 your tax returns will be provided to a trustee and the refunds will be applied towards paying back creditors. You may also be responsible for any income taxes that are unpaid. Paying these back will be arranged through a debt repayment plan.
Also keep in mind that whether you file for Chapter 7 or Chapter 13, you may still have to pay taxes for any debt accrued after your bankruptcy proceedings begin.
This information is provided by Miami bankruptcy lawyer Alonso, Perez & Santos, LLP. Our areas of practice include bankruptcy, debt harassment, credit card defense, foreclosure defense, immigration law, insurance litigation, business start-ups, and more. Call 305-676-7545 to speak with one of our attorneys and receive a free consultation. We look forward to working with you.
This information is provided for educational or informational purposes only and should not be construed as legal advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice.