Many people in Virginia have found a path to debt relief and a new financial future by filing for personal bankruptcy. However, when tax time rolls around, they may be concerned about how their Chapter 7 or Chapter 13 filing may impact their annual tax returns to the IRS. There are a few things for people to keep in mind when preparing their Form 1040 for submission after a bankruptcy. In the first place, it is important for people going through a bankruptcy case to file their tax return correctly and promptly. Under the bankruptcy code, people who do not file their tax returns or request an extension before the deadline may have their bankruptcy cases dismissed.
Those who are currently going through a bankruptcy may also want to make sure that the trustee for the process files Form 1041, an estate tax return, for the property they are managing in trust. This is especially true if, as in some cases, the person going through the bankruptcy is also serving as the trustee, rather than a professional in that position. While it is important to file an income tax return, the process may be different while the bankruptcy is underway.
People who receive a tax refund may be required to turn it over to their trustee to pay creditors depending on the specifics of their Chapter 7 or Chapter 13 bankruptcy. Those who owe additional taxes may have other concerns because people may not accrue other unpaid debts during bankruptcy. People who are unable to pay their tax bill right away may work with the IRS to set up a payment plan to avoid a finding of delinquency.
Individuals going through the process may consult with their bankruptcy attorney about financial decisions. A lawyer may provide guidance on how to handle tax filings.