How Bankruptcy Affects Your Tax Filing Status

By WriterEvan, Thursday, October 18, 2012

money How Bankruptcy Affects Your Tax Filing StatusBankruptcy is a pretty serious thing, and figuring out exactly what to do and how to successfully navigate all the thing that must be done in order to keep everything in order can become pretty overwhelming. There’s a lot to take care of when you’re filing for bankruptcy, especially if you’ve got a business and/or family to take care of in the meantime. There are a lot of moving parts to a process like this, and when tax season rolls around, many individuals assume their bankruptcy filing is going to have a serious effect on their income tax return. The fact of the matter is that your income tax return isn’t going to change too drastically after your bankruptcy filing, but there are a couple of things that should be kept in mind. We’ll talk about some of the most important things to remember as you get ready to file your income tax return after bankruptcy so you can make sure you stay in the IRS’ good graces and don’t wind up owing even more money.

In short, filing for bankruptcy doesn’t actually affect your tax status in terms of your income or the IRS. It’s what you might call a tax-neutral event, so it’s not going to have any kind of bearing on your filing status. As far as this is concerned, you can rest assured, but there are definitely still important things you’re going to need to remember as you’re filing. No matter what you do, you’re going to make sure you retain the services of a tax advisor. This is recommended often for individuals dealing with tax filing after bankruptcy, and this is because bankruptcy code is a pretty complicated thing. Not only is it a labyrinth of intricate policies and jargon, but it gets added to on a yearly basis. You’re likely going to need someone’s help in understanding everything, and it’s really important to make sure you know and follow all the rules. Furthermore, bankruptcy code is regulated on a state basis, and not federally. This means that the code will be different from state to state, so it’s important to have an advisor handy who understands your specific situation.

You’ll also need to get in touch with the IRS when you file your taxes after bankruptcy. If you owe back taxes and are already struggling with a pretty significant debt situation, the IRS will work with you to help figure out a payment plan so you can settle any back taxes that you owe. The same goes for the Department of Taxation — otherwise, you have to simply fill out and file your income tax return the same as you normally would. There’s not much different about your filing status or the return itself when you’re doing your taxes after bankruptcy.

The main thing is to make sure you know what you’re doing so you don’t wind up breaking any rules or running afoul of the IRS. You can hire an Illinois bankruptcy attorney or retain similar services in just about any state so that you can rest easy and know that your tax return will go off without a hitch.

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