Filing Income Tax After Bankruptcy

If you have questions about filing income taxes after bankruptcy, you should find this article helpful. We have done our best to address the items that cause the most confusion, and to clarify them for you in this article.

Disclosure: Tax laws and filing procedures change all the time. This guide to filing income tax after bankruptcy was written in February of 2010, but it may not be as accurate by the time you read it. You might want to consult a tax professional before you file your next return. At the very least, visit the IRS website and read up on the subject.

Personal bankruptcy is designed to give you some degree of protection from creditors. But the IRS can still try to collect any unpaid taxes you owe, even after a bankruptcy filing. There's no way I can tell you whether or not the IRS will pursue or forgive your debts, because there are too many variables at work. But I can give you some background information on the matter:

Generally speaking, all of your personal debts fall into one of two categories:

• Dischargeable -- These are the debts that get discharged, which means you are no loner responsible for them. This is one of the protections afforded by a bankruptcy filing.
• Non-dischargeable -- These are debts that still remain, even after bankruptcy. They do not get canceled, so creditors (or the IRS) can still pursue them.

What does this have to do with filing income taxes after bankruptcy, you ask? We're getting to that. But we need to cover all of the basics first. Next, you need to consider the type of personal bankruptcy you filed. Did you file for Chapter 7 or Chapter 13? Refer to the tax-filing information below, whichever is more relevant to your situation.

With the first option, Chapter 7, some of your debts would be dischargeable. Thus, Chapter 7 is also referred to as "debt forgiveness." Under this form of bankruptcy, some of your income taxes can be discharged (canceled) while others cannot. In most cases, any taxes owed for the years before you filed, and within three years of the filing, would not be discharged. But taxes that you've owed for more than three years could be discharged / canceled. This is something to keep in mind when filing your tax return after bankruptcy, because it could work to your advantage.

Chapter 13 bankruptcy is a different scenario. With this type of filing, you would work with the court to come up with a repayment plan to pay off some or all of your debts. Thus, Chapter 13 is also referred to as "debt restructuring." In this scenario, the bankruptcy court can decide which of your back taxes it wants to discharge / eliminate. So the three-year rule described under Chapter 7 doesn't really apply here. The court can do what it wants. Their main concern is that you stick to your repayment plan, and that you see it through to completion. If they feel they need to cancel some of the taxes you owe the IRS, so that you can complete your debt payments, then they can do exactly that. And the IRS cannot overrule it.

You can see that filing income taxes after personal bankruptcy will vary, based on the type of bankruptcy you filed -- Chapter 7 or Chapter 13. It all depends on what the court decides to do, and which debts and taxes end up being discharged.

From a paperwork standpoint, filing taxes after bankruptcy is basically the same as it was before that event took place. You would still use the same forms and go through the same basic steps. The difference now is that you might owe a lot of back taxes to the IRS -- or you might not. It all depends on what gets discharged, and what doesn't.

If you have additional questions about this, I would advise you to speak to a tax attorney or CPA. They can help you file your return properly, so it doesn't come back to haunt you at a later date.