There is life after bankruptcy! But don't forget, life after bankruptcy also includes taxes. Make sure you know what you need to watch for and know when and how to file.
No matter the time of year, April 15th always seems to be around the corner, with little time to prepare, especially if you're filing or considering filing for bankruptcy. So how can you minimize the stress?
Bankruptcy is essentially the surrendering your right to handle your own affairs and having a trustee oversee them. Thus your affairs are then part of an estate, such as if you had died or were debilitated.
The trustee then takes care of creditors for you with assets that aren't exempt under federal or state law.
What gets confusing about filing taxes after bankruptcy is that you're required to fill out two tax forms. One for personal and the other is for your bankruptcy estate. For Chapter 7, you will have to file your 1040 as you usually would, it's an obligation to file and the trustee has no part in this. Then your trustee would file a Form 1041 for your estate for bankruptcy.
For Chapter 11, you will maintain control of your assets and act as the bankruptcy trustee. You will then file for your individual 1040 and the bankruptcy 1041.
If you are filing for yourself and the bankruptcy, the common mistake is to miss filing for the 1041 which you will have to do no matter what your trustee situation is.
For Chapter 13, you will pay disposable income into a monthly payment plan to pay the creditors. You will more than likely have to continually file returns to the trustee and turn refunds for payments to creditors, however as with Chapter 7 your trustee handles the 1041 form.
So what should you do if you have to file for taxes after bankruptcy?
- Talk with an attorney about your bankruptcy case. Inform the attorney about your tax filing status for the past three years, how you handled it, and details of your filing.
- If you have yet to file for 2014, consider doing so before filing for bankruptcy, unless you know for sure you're going to have a substantial refund.
- If you have filed, make sure your attorney gets all of your tax records and you have explained how you spent refund money, if you've spent any yet. (You should use your refund to hire your attorney, don't you think?)
- Whatever refund you get, if you are pretty certain that you're going to have to file for bankruptcy, make sure to be smart with the money you get back and don't use it to pay off bills. This will slow down your bankruptcy case significantly.
- Don't forget to file on time. Don't get hit with additional fees for being late on your filing!