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Must I File All Tax Returns Before Filing Bankruptcy?

Tax Returns Must Be Filed Before Filing Bankruptcy—and You’ll Be Glad They Were!

tax returns before filing bankruptcy

There are some mandatory, legal reasons why you need to file any un-filed tax returns from prior tax years that you haven’t gotten around to filing before proceeding into a Chapter 7 or Chapter 13 bankruptcy, and then there are some very practical reasons why you want to make sure you’ve done that before filing a bankruptcy.

It is for these reasons that an experienced bankruptcy attorney will require you to provide copies of the filed returns for the past 2-4 years to him or her before agreeing to push the button and file your case with the court.

Why You Must File Tax Returns Before Filing Bankruptcy

If you have a legal obligation to file tax returns under the requirements of the IRS Code (i.e., your income is not low enough to get out of the obligation), you are legally obliged to get them filed regardless of whether you are considering filing for bankruptcy or not.

However, if you are considering or are in the process of filing a Chapter 7 or Chapter 13 bankruptcy, the US Bankruptcy Code (the Federal law governing the bankruptcy process in the United States) will require you to file your tax returns independently of the IRS Code, albeit in somewhat less explicitly in Chapter 7 bankruptcy than in Chapter 13.

In a Chapter 7 bankruptcy, Section 521(e) of the Bankruptcy Code requires you to provide a copy of your most recent tax return to the Chapter 7 Trustee assigned to your case not less than 7 days prior to the 341 Meeting of Creditors that you must attend before the Trustee typically about 30 days after your case is filed.

That is the Code. Additionally, here in the Detroit area of Michigan, local court rules require turnover to the Chapter 7 Trustee the prior 2 years’ tax returns filed, and the Trustees are within their rights to request returns even further back.

If you have not filed your returns and cannot therefore provide copies, the Chapter 7 Trustee will not “conclude” your 341 Meeting and will eventually file a motion to dismiss your case if the returns cannot be produced.

In a Chapter 13 bankruptcy, Section 1308 of the Bankruptcy Code explicitly requires that all returns required to be filed under the IRS Code or Michigan (or other state) Tax Code or local city law for the prior 4 years be filed. If not filed, again, the Chapter 13 Trustee may hold open the 341 Meeting of Creditors for a “reasonable” period of time awaiting production of the returns by the filing debtor—and generally a motion to dismiss the case if they are not produced within that period of time.

In the Detroit area of Michigan, at least 1 Chapter 13 Trustee is in the habit of refusing to “conclude” a 341 Meeting if the prior year’s tax return has not been provided at least 10 days prior to the 341 Meeting, even if  the 341 Meeting is scheduled on a date prior to April 15th of the current year and the prior tax return is not actually legally required to be filed under the IRS or other tax code yet!

Pushing it? Definitely. But the path of least resistance is to make you’ve got those returns filed and handed over to your bankruptcy attorney when he or she asks for them, long before the case is actually filed.

Why You Want to File Tax Returns Before Filing Bankruptcy

Even if you weren’t required by the Bankruptcy Code to get the prior years’ tax returns filed before the bankruptcy is, you’d want to in either a Chapter 7 or Chapter 13 bankruptcy.

Why? Because there are things you need to know before filing the bankruptcy that only the returns will tell you (and, more importantly, your bankruptcy attorney).

Like what?

  • Are you owed a refund for any of those prior tax years? If so, and you don’t list and exempt them, you lose then to the Chapter 7 Trustee in a Chapter 7.
  • Do you owe priority tax debts to the IRS or other taxing authority? If so, those debts need to be paid before any other “non-priority” credit card and medical and other general unsecured debts, and they need to be paid 100% in full before the completion of a Chapter 13 plan. It is impossible for your attorney to draft a realistic, feasible Chapter 13 plan without full knowledge of the extent of your priority tax debts.
  • Did you cash out an IRA or receive business income or liquidate business assets or receive income from stock dividends or other self-employment, etc.? All of these sorts of transactions are required to be disclosed in your bankruptcy petition under penalty of perjury, and the tax returns that reveal them can be extremely useful if your memory about what happened when over the past few years is foggy.
  • Did you sell or buy any real estate? 
  • Do you have legal dependents? 
  • And more.

The tax returns contain a wealth of information that, for every conceivable reason, you would want your bankruptcy attorney to see before a Chapter 7 Trustee, Chapter 13 Trustee, or the U.S. Trustee

Tax Returns Before Filing Bankruptcy: The Bottom Line

The bottom line regarding tax returns before filing bankruptcy is that, although it is a hassle to produce the large volume of documentation that your bankruptcy lawyer will request from you, it is all being requested for very good reasons and to help to ensure that your attorney will be able to move your case efficiently and painless from filing to discharge in the smooth manner you would like it to move.

Your attorney needs your help. There is little documentation he or she will request from you that is more important (and required!) than your prior tax returns.

If your income was so low for one or more prior years that you were not legally required to file a tax return, your attorney needs to know that, too, and will still require what income documentation and information you possess to support this lack of legal requirement. He or she will need to draft and file with the court an affidavit with your signature attesting to your lack of legal filing requirement.

But your assistance is a must, regardless. Make it easy for us to make it easy for you, and make sure you provide all tax returns and other information requested.

If you are a Michigan resident and would like to explore your options for a Chapter 7 or Chapter 13 bankruptcy with an experienced Michigan bankruptcy attorney, please contact us at (866) 674-2317 or click the button below to schedule a free, initial consultation.

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