Can You File Taxes After Filing for Bankruptcy?

Navigating personal finance can be challenging, especially during bankruptcy. A common concern is how it impacts tax obligations. Filing for bankruptcy does not eliminate the requirement to file tax returns. Instead, bankruptcy introduces specific considerations and adjustments to the tax filing process.

Understanding Tax Filing During Bankruptcy

When a bankruptcy petition is filed, particularly under Chapter 7 or Chapter 11, the tax year can split into two periods: a pre-petition period and a post-petition period. This election allows for a clear delineation of income and deductions incurred before and after the bankruptcy filing date, impacting tax liabilities.

Upon filing, a separate legal entity known as the bankruptcy estate is often created. This estate takes ownership of the debtor’s assets and becomes responsible for any income generated from these assets and for certain related deductions. The bankruptcy estate is treated as a separate taxpayer for federal income tax purposes, distinct from the individual debtor.

Tax filing responsibilities are divided. The individual debtor remains responsible for filing their personal income tax return, typically using Form 1040, for income earned during the post-petition period and any income not transferred to the estate. The bankruptcy trustee, or the debtor-in-possession in Chapter 11 cases, files a separate income tax return for the bankruptcy estate, utilizing Form 1041, U.S. Income Tax Return for Estates and Trusts.

Preparing Your Tax Information After Bankruptcy

A consideration following bankruptcy involves the treatment of canceled debt. Debt discharged or canceled through bankruptcy is not considered taxable income to the debtor. This exclusion prevents an undue tax burden on individuals who have undergone financial restructuring.

Debtors may receive Form 1099-C, Cancellation of Debt, from creditors reporting the amount of debt canceled. While this form might suggest taxable income, the exclusion for bankruptcy-related debt cancellation must be claimed. To report this exclusion and ensure the canceled debt is not taxed, individuals must file IRS Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. This form indicates the debt was discharged in bankruptcy and adjusts certain tax attributes.

The discharge of indebtedness in bankruptcy can impact a taxpayer’s tax attributes, which include net operating losses, capital loss carryovers, and certain tax credits. These attributes may be reduced or eliminated in a specific order to offset the excluded canceled debt amount. Form 982 details the order in which these tax attributes must be reduced.

To prepare tax returns after bankruptcy, gather all relevant financial documents. This includes official forms or statements received from the bankruptcy court or trustee, such as notices of discharge. Also collect all Forms 1099-C received from creditors reporting canceled debt, along with standard income and deduction statements like W-2s, 1099s, and records for itemized deductions.

Filing Your Tax Returns After Bankruptcy

After preparing information, the procedural steps for submitting tax returns after bankruptcy require attention. The individual debtor typically files their personal income tax return using Form 1040. When applicable, Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, must be attached to Form 1040 to claim the exclusion for canceled debt and report the adjustment of tax attributes.

The bankruptcy estate, if created, files its own tax return using Form 1041, U.S. Income Tax Return for Estates and Trusts. This return is filed by the bankruptcy trustee or debtor-in-possession, reporting the estate’s income, deductions, gains, and losses.

Filing deadlines for tax returns after bankruptcy generally follow standard IRS guidelines, but specific adjustments can occur, particularly if the debtor elects to split the tax year. If the tax year is split, the pre-petition tax period may have an earlier filing deadline, often the 15th day of the fourth month after the month the bankruptcy case began. Confirm all applicable deadlines to avoid penalties.

Completed tax returns, along with all required schedules and forms such as Form 982, can be submitted to the Internal Revenue Service via mail or, if eligible, through electronic filing. Ensure all supporting documentation is included and returns are signed and dated correctly.

Managing Unfiled Taxes From Before Bankruptcy

Filing for bankruptcy does not eliminate the obligation to file any unfiled tax returns from periods prior to the bankruptcy petition. Individuals are still required to file all past due tax returns, even if they anticipate the related tax debt might be discharged in bankruptcy. Non-filing can have negative consequences.

Not all tax debts are dischargeable through bankruptcy. The ability to discharge tax debt depends on several conditions, including the type of bankruptcy chapter filed, the age of the tax debt, and whether the tax returns were filed timely. Generally, tax debts must be several years old, associated returns filed, and no fraud or willful evasion of taxes present for the debt to be considered for discharge.

For instance, federal income tax debts are dischargeable only if they are at least three years old from the tax due date (including extensions), the return was filed at least two years before the bankruptcy petition, and the tax was assessed at least 240 days before filing. If these conditions are not met, the tax debt may survive the bankruptcy discharge. Even if a tax debt is non-dischargeable, filing the pre-petition returns is still important.

Filing all pre-petition tax returns, even those with non-dischargeable tax liabilities, is important. Failure to file can lead to additional penalties and interest, and in some cases, prevent the discharge of other, otherwise dischargeable, debts. Timely filing demonstrates compliance and can positively influence how a bankruptcy court views the debtor’s financial conduct.