The Law Office of Michael West knows that for many people, April 15th is one of the most stressful days of the year. Since this is the deadline for filing your family’s federal tax return, which is not a pleasant task, many Georgians wait until the last minute to prepare and file their taxes as a way of delaying the inevitable for as long as possible. While we fully understand that filing taxes is not fun, it is important to give yourself plenty of time to complete your tax return correctly in order to prevent making mistakes that can arise from lack of time or preparation.
One important question that our clients often ask is how does filing for bankruptcy affect my taxes or vice versa? Some people mistakenly believe that they do not need to file a tax return if they file for bankruptcy, or that they can keep any tax refund owed to them after they file bankruptcy. The Internal Revenue Service (IRS) and the U.S. government as a whole take the issue of taxes very, very serious and so it is very important to know all of your rights and responsibilities before the April 15th deadline. Read on to learn more about the relationship between taxes and bankruptcy.
1. Discharging tax debts in bankruptcy
This is one of the most frequently asked questions we receive – can a person discharge their tax debts in bankruptcy? The answer is “sometimes” and only if the person meets a series of requirements such as having previously filed a tax return, only owing income tax, etc. For a full consultation to determine whether you can discharge your debt in bankruptcy, contact our office as soon as possible to speak to an experienced bankruptcy attorney who can review all of the facts of your case.
2. When to file bankruptcy – before or after April 15th
Behind the issue of debt discharges, the timing of bankruptcy filings is perhaps the second most discussed issue in our office. The timing of a bankruptcy filing is very critical as this act establishes the petition date and also triggers an important event called the automatic stay. Because the automatic stay and the petition date control many important aspects of the whole bankruptcy process, the timing is an integral part of a person’s debt relief strategy. Other events such as tax filings and divorce must be taken into consideration before submitting the petition to the bankruptcy court.
For example, if a person files a tax return and receives a refund before filing for bankruptcy, the person may not be able to keep all or any of the refund because this money may be viewed as “property of the bankruptcy estate” by the trustee. If so, the trustee could take the refund and distribute it to the person’s creditors as part of the Chapter 7 bankruptcy process.
3. Filing a joint or separate return
Did you know that you are not required to file a joint return if you are married? Many Georgians mistakenly believe that they have to file a return with their spouse even though doing so may not be in either person’s best financial interests. For example, one spouse may be filing for bankruptcy on his/her own. A joint tax filing could greatly affect this type of case.
If you have more questions to discuss about taxes and bankruptcy, please feel free to contact our office at any time – we look forward to speaking with you!