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The impact of filing for bankruptcy on your taxes

On Behalf of | Aug 3, 2020 | Bankruptcy, Chapter 7 | 0 comments

Filing for Chapter 7 bankruptcy in New York may create a ripple effect in many areas of your life. One financial obligation that is not removed despite your bankruptcy filing is the need to pay taxes.

Your awareness of how bankruptcy may impact your taxes may help you avoid costly and disappointing mistakes. If approached thoughtfully and carefully, you may successfully file your taxes and pay any outstanding dues without compromising your finances any further.

Beware of debt

Filing for Chapter 7 bankruptcy in particular, according to Turbo Tax, means accruing new debt may put you in a difficult predicament. So long as court supervision monitors your debt conditions, any new debts including taxes you cannot pay may put your case at risk of dismissal. Once your bankruptcy begins, any new debt you accrue is your responsibility to pay. Any debt you wish to address in your bankruptcy requires disclosure in the original documents you file.

Because the law prevents you from filing for Chapter 7 bankruptcy any more than once every eight years, your only option to pay post-petition taxes is to actually pay them before the deadline. As such, carefully review your budget and account for the payment of your taxes so there are no surprises.

Filing the correct forms

If tax season hits during your Chapter 7 bankruptcy filing, you will need to file a 1040 form as usual. Additionally, the trustee of your bankruptcy estate will also need to file a 1041 form. Seeing that each of these documents is correctly filed and contains all applicable and necessary information is imperative to avoid oversights that may create additional stress and strain for you.

If you would like to learn more about recovering from bankruptcy, please visit our webpage.