Bankruptcy Bound in 2010? Time to Take on Your 2009 Tax Returns

The holidays are now officially over. The New Year has begun in earnest. And ‘tis the season for tax time. If you believe you’re bankruptcy bound in 2010, that definitely means it’s also time to get your 2009 returns in order.

Thinking About Chapter 13 Bankruptcy?

Chapter 13 bankruptcy helps restructure your debt into a more manageable payment plan—allowing you to pay back what you owe over time, often at a percentage of the cost. If you’re considering this type of bankruptcy, it’s important to remember that tax returns should be provided in Chapter 13 cases.  You must file all tax returns for all tax years – including returns for 2009.  Bankruptcy Code Section 1308 provides:

(a) Not later than the day before the date on which the meeting of the creditors is first scheduled to be held under section 341(a), if the debtor was required to file a tax return under applicable non-bankruptcy law, the debtor shall file with appropriate tax authorities all tax returns for all taxable periods ending during the 4-year period ending on the date of the filing of the petition.

(b) (1) Subject to paragraph (2), if the tax returns required by subsection (a) have not been filed by the date on which the meeting of creditors is first scheduled to be held under section 341(a), the trustee may hold open that meeting for a reasonable period of time to allow the debtor an additional period of time to file any unfiled returns, but such additional period of time shall not extend beyond–

(A) for any return that is past due as of the date of the filing of the petition, the date that is 120 days after the date of that meeting; or

(B) for any return that is not past due as of the date of the filing of the petition, the later of–

(i) the date that is 120 days after the date of that meeting; or

(ii) the date on which the return is due under the last automatic extension of time for filing that return to which the debtor is entitled, and for which request is timely made, in accordance with applicable nonbankruptcy law.

In plain English, this verbose section of the Bankruptcy Code means that if you’re a Chapter 13 filer, you must file your tax returns before the creditor’s meeting to assess your ability to repay your debts.  If you have yet to file, your bankruptcy trustee (appointed to evaluate the case and serve as an agent for collecting your payments and making distributions to your creditors), may continue the meeting until it is filed, up to 120 days.  After this 120-day window, your case can be dismissed.  As such, it’s best to be proactive, avoiding any reliance on an extension.

What About Chapter 7?

If you’re considering filing a Chapter 7 bankruptcy in order to dispense all of your unsecured debts, the tax implications are a bit different.  In this case (as in a Chapter 13 case), it is vital to alert your bankruptcy attorney if you expect that you will owe taxes pending the filing of your 2009 return.

On the other hand, if you expect a refund, like the majority of Americans, based on where you live and other considerations, this financial return (or a portion of it) may be considered an asset of the bankruptcy estate, and, as such, will only be protected to the extent you can protect it with state exemptions (up to $10,000.00 for a married couple in North Carolina).

If you’re considering bankruptcy in 2010 and are concerned about the tax implications, including when to file, whether you can keep your tax refund, and any other factors in your personal circumstances that might require consideration, it’s important to speak with an experienced bankruptcy attorney who can competently guide you on the right path to the best result.

The bankruptcy experts at the Law Offices of John T. Orcutt offer a totally FREE debt consultation and now, more than ever, it’s time to take them up on their offer. Just call toll free to +1-833-627-0115, or during the off hours, you can make your own appointment right online at www.billsbills.com. Simply click on the yellow “FREE Consultation Now” button.