What Are the Tax Effects of Your Bankruptcy?
Have you filed for personal Chapter 7 bankruptcy? If the answer is yes, you may have a lot of questions about how the bankruptcy process works and whether you’ve done all that you should to make sure that your filings are complete.
It’s often said that there are two certainties in life: death and taxes. While bankruptcy can be a kind of financial death, in some cases the taxes from your estate may live on after your bankruptcy filing. If you’re trying to re-build your financial life, you should be certain whether you’ve paid all of the taxes associated with your income.
For instance, did you know that the bankruptcy estate of an individual Chapter 7 estate is a separate taxable entity that must file its own tax return? In some cases, in fact, an individual Chapter 7 debtor may ultimately file two tax returns in the year in which he declares personal bankruptcy. In these situations, the first tax return is for pre-petition income and liabilities; the second return is for the debtor’s post-petition tax obligations.
Likewise, it’s important for you to understand where tax obligations fall within the hierarchy of liens against the estate. While administrative expenses and certain other claims take a higher precedence than tax obligations, other monies – such as payments to certain creditors or to the residuary – are susceptible to taxation. Before you think you’re trip through bankruptcy is complete, make sure that you’re all square with the Internal Revenue Service (IRS). Failure to do so may cause more headache than you’d like!
Do you have questions about the tax effects of your bankruptcy? The attorneys at the Dallas firm of Fears Nachawati are prepared to help you sort through this nuanced and challenging area of bankruptcy. With years of experience in this important area of the law, we’re ready to advise you. For your free consultation, call or email us today.