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Category: Bankruptcy and Taxation

Do I Need to File My Tax Returns Before Filing for Bankruptcy?

Posted by Ryan Blay on April 17th, 2014 in Bankruptcy, Bankruptcy and Taxation, Bankruptcy procedures, Chapter 13, Chapter 7

April 15th is the deadline to file 2013 tax returns with the IRS and your state taxing authority unless you’ve received an extension to file.  But you may notice we ask for several years of tax returns (if you were required to file) before we can file your bankruptcy. Why?

Well, let’s say you have regular income and want to do a Chapter 13 filing to make a payment plan for your debts over 3 years.  One of the requirements in the bankruptcy code says you have to file all tax returns for all taxable periods ending during the 4-year period ending on the date of the filing of the petition?  Huh?

Basically you have to have filed your last 4 years of tax returns before filing the bankruptcy.  What happens if you don’t?  Well, your Chapter 13 trustee can hold open the meeting of creditors to file those returns.  If they aren’t filed, the case can be dismissed and your bankruptcy will tank.  That would be bad.

The code also says all debtors have to provide certain tax returns to the trustee before the meeting of creditors.  If you don’t do that, the trustee can’t do their job and conduct the meeting.  Your case could be dismissed and you won’t get the benefit of the hard work, fees, and other documents you’ve already invested in the case.

Not only that, but if you never file your tax returns, the debt you might owe from those past returns can’t be discharged.  Think about that – you might owe tax debt from 2007 or 2008 that could be discharged this year if the taxes were filed in a certain time frame.  By not filing, you’re denying yourself a chance to eliminate that debt!

Tax returns are important pieces of information that lets your attorneys do their job of asking questions and let the trustees do their job in administering cases.  Unless you have a good excuse for not filing (such as only having social security income or not having any job in the year that the returns would have been filed), you should always file those returns.  If you owe the money, we can talk about how you might be able to pay it back or eliminate it.  But until that’s done, you’re only hurting yourself by refusing to file.

If you have questions about discharging or repaying taxes in bankruptcy, reach out to us.  Lakelaw will help go over your paperwork with you to make the most of your bankruptcy debt elimination or repayment plan.   Call 847-249-9100 or 262-694-7300 in Wisconsin, or e-mail us , but most of all, get those taxes filed and copies to us!

I got a 1099 after my short sale – do I owe taxes?

Posted by David Leibowitz on April 6th, 2011 in Bankruptcy and Taxation, Bankruptcy and Taxes

As April 15 approaches, people’s thoughts turn to income tax.  And when they get a form 1099 from their lender after a short sale, they start to worry.  In many cases, the answer is “no worries”.

The problem is that forgiveness of debt is typically considered to be income for tax purposes.  After all, you are better off if you don’t owe the money any more.  You could spend the money you have on other things. So you gained.  And that gain is income.

But what if you are broke and insolvent.  Then you are not able to spend the money you saved.  You just are less worse off then you were before. The IRS understands this and says that if you are insolvent, income from forgiveness of debt isn’t taxable even if you get a 1099 from your lender.

In addition, the Internal Revenue Code was amended in 2007 through the year 2012 to provide that income in respect to forgiveness of debt on a short sale of your principal residence is not taxable. So if you sold your house on a short sale last year, you are also good to go.

There are other ways to limit the pain of forgiveness of debt. If you file a bankruptcy case, you will usually be deemed to be insolvent and not have any income in respect to forgiveness of debt.  And if you have any remaining property you can “reallocate tax attributes” to other property you may own.  If you don’t know what this means, ask your tax advisor since this is somewhat technical.

We at Lakelaw are not tax attorneys.  But we do know about bankruptcy, insolvency and mortgage foreclosure. And when we need to, we know about other areas of law which relate to our areas of concentration.  And as always, we stand ready to serve you with care, kindness, courtesy, respect, professionalism and dedication.


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