When it comes to filing bankruptcy, many people are often confused about how it will impact their tax filings in the coming years. There are several items to note when discussing bankruptcy and taxes, and our Colorado bankruptcy team clears up some of the confusion below.
Tax Refunds
One common question that several people have about bankruptcy is whether or not they will be able to keep their tax refund after they file. The first step is looking at when you earned the refund in question.
If you earned the refund the year before you filed for bankruptcy, it will go to the bankruptcy estate and will be treated as cash or money from your bank account.
If the refund was earned the same year you filed for bankruptcy, it will either go to the bankruptcy estate if you gained it before you filed for bankruptcy, or it will remain untouched if it was earned before you filed.
Refunds earned the tax year after you file for bankruptcy will not be placed within the estate, and you will be able to keep the full amount.
Filing Taxes
The biggest confusion for taxpayers who recently filed for bankruptcy is the need to file two different tax forms.
Chapter 7 filers would still fill out the usual 1040 form the same way they always would, due to the fact that taxes are not considered debt, rather an obligation to file taxes for the federal government. The difference is found when the trustee of the bankruptcy estate has to file a Form 1041 to account for the bankruptcy estate itself.
Chapter 13 filers are required to make timely payments through their court-approved bankruptcy plan which can take anywhere from three to five years to complete. In cases such as these, bankruptcy filers are typically required to continue filing their taxes on time, however, their trustee is still required to file a Form 1041 for the bankruptcy estate.
Contact Our Colorado Bankruptcy Team Today
We understand how overwhelming a stressful financial situation can be. At Wagner Law Office, P.C., we are ready to help guide you to financial freedom with compassionate and personalized services.
If you have questions about how bankruptcy can help you, don’t hesitate to contact us today through our website or give us a call at (303) 536-5124 to schedule a consultation.