What Tax Returns Are Required for Chapter 7?
Filing for Chapter 7 bankruptcy has strict tax documentation rules. Learn how these requirements impact the different stages of the legal process.
Chapter 7 bankruptcy offers a path for individuals to achieve a fresh financial start. This legal process involves liquidating certain assets to repay creditors under the supervision of the bankruptcy court. The system is built on transparency, and providing specific tax documents is a mandatory part of the proceedings.
Tax Return Required to File Your Petition
To begin a Chapter 7 bankruptcy case, you must provide the court with a copy of your most recently filed federal income tax return. This document is submitted with your initial bankruptcy petition. The specific law, 11 U.S.C. § 521, mandates this disclosure to give the court an initial snapshot of your financial situation.
Confusion can arise if you file for bankruptcy early in the year, before the April tax filing deadline. For instance, if you file for bankruptcy in February, you are not yet required to have filed the tax return for the previous calendar year. In this scenario, the return you must provide is the one for the year prior to that—the latest one you have actually filed with the Internal Revenue Service (IRS).
You must first prepare and file any delinquent tax return with the IRS before you can seek bankruptcy protection. If you no longer have a copy of the needed return, you can request one from your tax preparer or use the “Get Transcript” service on the IRS website to obtain a free tax return transcript.
Tax Documents for the Bankruptcy Trustee
After your case is filed, a Chapter 7 trustee is appointed to oversee it. You must provide the trustee with a copy of your federal income tax return for the most recent tax year, due at least seven days before the meeting of creditors.
The trustee will examine your tax return to verify the accuracy of the information listed on your bankruptcy schedules, such as your stated income, assets, and claimed dependents. As part of this review, the trustee may also ask for additional documents, including state tax returns or federal returns from previous years, to uncover any undisclosed assets or identify unusual financial activity.
Many trustees prefer or even require official IRS tax transcripts instead of copies of the returns you filed. You can obtain these transcripts online through the IRS website, by mail, or through your tax professional. These documents are provided directly to the trustee and are not filed with the court clerk.
Consequences of Failing to Provide Tax Returns
Failing to comply with the tax return requirements has serious consequences for your bankruptcy case. The repercussions differ depending on which requirement you fail to meet.
If you do not provide a copy of your most recent tax return when you first file your petition, the bankruptcy court clerk is legally prevented from accepting it. This means your case will not be filed, you will not be assigned a case number, and the automatic stay will not go into effect, leaving you without protection from creditor collection actions.
Failing to provide the tax returns or transcripts requested by the trustee leads to a different outcome. The trustee will file a motion with the court to dismiss your case. A dismissal means your bankruptcy case is closed without any of your debts being discharged. You will lose your court filing fee, and the automatic stay protection will be lifted, allowing creditors to resume collection efforts.