Tax Returns The bankruptcy paperwork requires disclosure of your year-to-date income and income for the past 2 years. To provide an accurate disclosure your attorney will ask for your tax returns for the past 2 years.
Depending on where you file for bankruptcy, your local rules may also require that you provide copies of tax returns to the trustee assigned to your case. Without those filed returns, the trustee may have a bone to pick with you – and that will ultimately go to the judge.
Unless David can protect the refund with an exemption, the bankruptcy trustee can take the $2,000 refund and use it to pay some of David's debt. Example 2: Sarah files for bankruptcy on June 30, 2019, and is employed for all of 2019. In the spring of 2020, Sarah receives a $2,000 tax refund from her 2019 tax return.
Spending your tax refund on luxury items like jewelry will create problems in your bankruptcy case. But you can use your refund on many ordinary expenses, including rent, mortgage payments, home repairs, food, utilities, clothing, educational expenses, car repairs, medical and dental expenses, and insurance.
This requirement is only triggered if someone makes a formal request. In most cases, no one makes the request—which means you don't have to file post-bankruptcy tax return documents with the bankruptcy court.
You must file all required tax returns for tax periods ending within four years of your bankruptcy filing. During your bankruptcy you must continue to file, or get an extension of time to file, all required returns. During your bankruptcy case you should pay all current taxes as they come due.
Copies of Tax Returns Filed Before the Bankruptcy If you file for Chapter 7 bankruptcy, you must provide to the bankruptcy trustee a copy of your tax return for the most recent tax year for which a return was filed (but plan on providing the two most recent returns).
If you're thinking about bankruptcy, it's a good idea to make sure your tax returns are up to date. You won't gain any real advantage by waiting to file your income tax return until after you file a bankruptcy case.
The courts require a look bankruptcy back period of six months, to ensure that there has not been a major liquidation of assets or deliberate reduction in income in anticipation of filing the bankruptcy petition. Your six month income lookback for bankruptcy includes: Wages earned. Commissions and bonuses earned.
In addition, the trustee has a duty to investigate the conduct and financial affairs of the bankrupt for the period leading up to his/her bankruptcy, to establish the causes of the bankrupt's failure and to ensure that no assets have deliberately been “put out of the reach” of creditors.
After you file for bankruptcy protection, your creditors can't call you, or try to collect payment from you for medical bills, credit card debts, personal loans, unsecured debts, or other types of debt.
Last six months of bank statements. Every bankruptcy trustee will ask for bank statements. The debtor's attorney must review bank statements to uncover suspicious transactions before filing the case.
A lawyer can ask you for a financial statement during settlement discussions, but you are not required to provide the information.
Unfortunately, it doesn't matter if the money is set aside for a specific bill or purpose; if it's not exempt, the trustee can take it. You are allowed to spend the money you have before filing your case. Although that may sound a bit strange, the bankruptcy law and exemptions exist to protect you.
In Chapter 7 bankruptcy, you'll provide the most recent federal tax return filed (possibly two). You'll turn over four years of returns in Chapter 13. Find out what happens to tax refunds in bankruptcy.
In both cases, you'll need to provide the returns to the trustee at least seven days before the 341 meeting of creditors.
A large part of filing for bankruptcy involves providing financial information and verifying it with supporting documents. You'll provide the documents and answer questions at a hearing called the 341 meeting of creditors. To ensure a productive meeting, you're required to send the trustee the 521 documents beforehand (or file them with the court, depending on local practices).
A trustee needs more in a Chapter 13 bankruptcy to determine whether you owe taxes (many taxes must be paid in full in the plan). So, in a Chapter 13 bankruptcy, you'll need to show that you've filed returns for the four previous years.
In a Chapter 13 bankruptcy, you must contribute all of your disposable income to the Chapter 13 plan for three to five years. It's quite likely that your income will change over this period. The trustee uses the returns to monitor your income and to determine whether your plan should be modified to include additional post-petition income not anticipated at the plan confirmation.
Annual Income Tax Returns in Chapter 13. In a Chapter 13 bankruptcy, you must contribute all of your disposable income to the Chapter 13 plan for three to five years. It's quite likely that your income will change over this period.
If you file for Chapter 7 bankruptcy, you must provide to the bankruptcy trustee a copy of your tax return for the most recent tax year for which a return was filed (but plan on providing the two most recent returns). A trustee needs more in a Chapter 13 bankruptcy to determine whether you owe taxes (many taxes must be paid in full in the plan).
Under the U.S. Bankruptcy Code (11 USC 1308) you’re required to have tax returns filed for all taxable periods ending during the 4-year period ending on the date of the filing of your bankruptcy case – and you’ve got until the day before your meeting of creditors to get it done.
Under the U.S. Bankruptcy Code (11 USC 521 (e)) you’ve got until 7 days prior to the meeting of creditors to provide the case trustee with a copy of your most recent tax return. If you’ve been diligent about your obligations this should be a snap, but if you’re sending along a 5 year old return yet showing current income then under 11 USC 521 (f) it’s a different story.
The trustee may have asked the bankruptcy court to throw his case out of court due to a failure to provide his tax returns, which would have put his case in jeopardy. Though we may have won the argument against the trustee, it would have cost my client more money in legal fees, to say nothing of the anxiety surrounding an argument in court.
You may be required to file with the court copies of your tax returns that are past due; you may also be required to file them with the court on a going-forward basis for some period of time.
Depending on where you file for bankruptcy, your local rules may also require that you provide copies of tax returns to the trustee assigned to your case. Without those filed returns, the trustee may have a bone to pick with you – and that will ultimately go to the judge.
So that portion of the refund belongs to your trustee, unless the refund is protected by an exemption.
Often the best way to avoid losing your tax refund in bankruptcy is to spend your refund before you file for bankruptcy. Spending your tax refund on luxury items like jewelry will create problems in your bankruptcy case. But you can use your refund on many ordinary expenses, including rent, mortgage payments, home repairs, food, utilities, clothing, educational expenses, car repairs, medical and dental expenses, and insurance. And if you have spent your tax refund on ordinary expenses before you file for bankruptcy, there is no tax refund to protect in your bankruptcy case.
If you forgot to list your tax refund on your bankruptcy forms and your 341 meeting has not yet taken place, you must file an amendment to your bankruptcy forms listing the refund, whether or not it is exempt.
The tax refunds that he receives from those 3 years are part of his bankruptcy estate because those refunds resulted from work that he performed before filing for bankruptcy. Unless Jason can protect the refunds for all three years with an exemption, he will lose them to the bankruptcy trustee.
Your bankruptcy estate is the pool of your assets on the date of your bankruptcy filing. Unless these assets are protected by an exemption, your bankruptcy trustee can distribute them to your creditors in repayment of your debts. Tax refunds are tricky because they are often part of your bankruptcy estate even though you may not receive ...
Change Your Tax Withholding. If you plan to file for Chapter 7 in the next year, you can also avoid receiving a refund at all by adjusting your tax withholding so that you only pay the tax you owe. By doing this, you’ll receive more money each month and you can avoid getting a tax refund.
That’s because non-cash assets are far less attractive for trustees to take than tax refunds. If you can’t use the federal bankruptcy exemptions, most states have a lower value wildcard exemption that offers less protection for your tax refund.
You receive a tax refund when you've paid more than you needed to pay in taxes. Although it might be nice to get a significant return at the end of the year, you might not be so happy about your savings plan if you find yourself filing for bankruptcy. Why? Because instead of using that money for your expenses, you might end up turning it over to your creditors.
If you routinely received large tax refunds in the past, and expect to do so again, consider adjusting your withholding so that less is taken out of your paycheck. Doing so will minimize the amount of your refund. The smaller the refund, the less likely that a trustee will be interested in taking it, and the less that you have to try to exempt.
Because another approach might be best for you, a prudent approach is to consult with a knowledgeable bankruptcy lawyer.
Planning. If you routinely received large tax refunds in the past, and expect to do so again, consider adjusting your withholding so that less is taken out of your paycheck. Doing so will minimize the amount of your refund. The smaller the refund, the less likely that a trustee will be interested in taking it, and the less that you have to try to exempt.
Using exemptions. Each state has a list of the property its residents can protect, or "exempt." Some states allow residents to choose between two lists: state exemptions and federal bankruptcy exemptions. However, most states don't have an exemption that protects a tax refund. Instead, you might be able to protect some or all of it using an earned income credit exemption, a wildcard exemption (that allows you to protect any property of your choosing), or a cash exemption (not many states have cash exemptions). You'll lose any portion that you can't exempt.
So, if your income spikes all the way up one year and that is revealed in your tax returns, the trustee needs to know it so that the trustee can go back into court and ask the judge to modify your Chapter 13 plan. Now that’s not a good outcome, but it doesn’t happen that often.
The reason for that, is that during the term of you Chapter 13 case, 36 to 60 months, your income might fluctuate significantly, and you’re supposed to pay over all of your net disposable income in order to qualify for a Chapter 13 discharge.
On the other hand, in some Chapter 13 cases you need to turn over your tax refunds every year because that’s also part of your net disposable income, and the trustee needs to monitor your tax returns in order to see if you’re getting refunds.
When you receive a tax refund during a Chapter 13 bankruptcy, the trustee might consider those funds disposable income if they represent funds that weren't included in the income and expense calculations used to support your Chapter 13 plan. Also, the Chapter 13 trustee might argue that since you can afford to pay all your necessary expenses and make your plan payment on your monthly income alone, the tax refund is a surplus and is disposable income that you must pay into the plan.
Another method of excusing tax refunds is to propose not committing any tax refunds in the plan itself. The trustee and your creditors will likely object to such plan language unless you: 1 provide a compelling reason for the provision (perhaps you have a large yearly expense), and 2 you limit the dollar amount to ensure you don't receive more money than what's specified in the plan.
People who file for Chapter 13 bankruptcy must pay all of their disposable income into the Chapter 13 plan—that is, any income not used for reasonable and necessary expenses, such as food, transportation, and shelter. (Learn more about the Chapter 13 Repayment Plan .)
For Ashley's Chapter 13 plan to work, she must pay $1,000 per month to the trustee. Her income from work is just enough to cover her reasonable and necessary expenses plus the plan payment. She ends up falling behind and needs her tax refund to catch up on her electrical bill.
Do Not Sell My Personal Information. If you receive a tax refund during your Chapter 13 bankruptcy, the trustee assigned to administer the case could require you to turn that money over for payment to your creditors. Fortunately, bankruptcy law allows you to modify your Chapter 13 plan to excuse payment of tax refunds in certain circumstances.
Also, the Chapter 13 trustee might argue that since you can afford to pay all your necessary expenses and make your plan payment on your monthly income alone, the tax refund is a surplus and is disposable income that you must pay into the plan. If you can show that the trustee's analysis is incorrect, the court might find ...
The easiest way to excuse a tax refund is to show that you'll need to use the refund to make your plan work. However, most people can't justify a "keep the return" provision in the plan.
The trustee will compare your bankruptcy petition disclosures to the supporting documents you're required to turn over, such as paycheck stubs and tax returns. If your income doesn't match your reported figures, or if you inaccurately report side business profits, you can expect some pointed questions.
The trustee will also review your income calculations to ensure that you're qualified for Chapter 7 bankruptcy, or that you are paying all of your disposable income into your Chapter 13 repayment plan. The trustee will compare your bankruptcy petition disclosures to the supporting documents you're required to turn over, ...
In both Chapter 7 and Chapter 13 bankruptcy, the value of property matters—primarily because of the rule that entitles unsecured creditors to an amount equal to your nonexempt property. (Nonexempt property consists of assets you can't protect with a bankruptcy exemption .)
Defrauding creditors in this manner involves taking steps to pay them less than what they're owed. For more information, see Bankruptcy Clawbacks: Preferential & Fraudulent Transfers.
Not only are the creditors' rights at stake, but the trustee gets paid according to the amount dispersed to creditors. The more assets, the more the trustee benefits financially. So, you can expect the trustee to look into your property holdings thoroughly and ask about any red flags.
A trustee who determines that you made a preferential payment can get that money back for the benefit of all your creditors. In practice, if you don't want the trustee to shakedown your grandma for loan payments, you'll likely end up paying the money back yourself.
A trustee can avoid (cancel) preferential payments made to creditors shortly before bankruptcy. A preferential payment will arise when a debtor pays back a debt to a family member within the year before the filing. Other preferred creditor payments can occur within 90 days before filing.