Taxes & Bankruptcy FAQ's
What happens to my federal tax when I file bankruptcy?
It depends whether you file a Chapter 7 or a Chapter 13.
What are the tax obligations of a person who is filing bankruptcy?
When filing a Chapter 7 bankruptcy petition, you create a separate taxable bankruptcy estate, consisting of property that belongs to you before the filing date, and is completely separate from you as an individual taxpayer. The trustee is responsible for preparing and filing the estate’s tax returns (Form 1041) and paying its taxes. The individual debtor remains responsible for filing returns (Form 1040) and paying taxes on any income that does not belong to the estate.
Do I have to claim the debt discharged in a bankruptcy as income on my tax return?
No, you do not. Note that the tax treatment of debt forgiven in bankruptcy is a marked difference between bankruptcy and debt management programs
Are shareholders liable for the tax debts of their corporation?
No, except for trust fund taxes: the amounts withheld from the wages of employees and not paid over to the taxing authority.
Can the bankruptcy court decide tax disputes?
Yes, the bankruptcy court can decide disputes between the debtor and a creditor, even if the creditor is the IRS.
Can the IRS deny my bankrputcy discharge?
No. In a bankruptcy case, the IRS is just another creditor.
Is the IRS affected by my bankrputcy filing?
The IRS must cease collection actions just like all other creditors when a debtor files for bankruptcy. The automatic stay protects the debtor and the debtor's property. |
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